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How Does Internal Control Regulation Affect Financial Reporting?

45 Pages Posted: 15 Sep 2006 Last revised: 15 Sep 2009

Jennifer Lynne M. Altamuro

Villanova University - Accountancy

Anne Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Multiple version iconThere are 2 versions of this paper

Date Written: June 24, 2009

Abstract

Internal control regulation effectiveness remains controversial given the recent financial crisis. To address this issue we examine the financial reporting effects of the Federal Depository Insurance Corporation Improvement Act (FDICIA) internal control provisions. Exemptions from these provisions for banks with assets under $500 million and for non-U.S. banks provides two unaffected control samples. Our difference-in- differences method suggests that FDICIA-mandated internal control requirements increased loan-loss provision validity, earnings persistence and cash-flow predictability, and reduced benchmark-beating and accounting conservatism for affected versus unaffected banks. More pronounced effects in interim versus fourth quarters suggests that greater auditor presence substitutes for internal control regulation.

Keywords: Internal Control, Earnings Quality, Banking

JEL Classification: G1, G21

Suggested Citation

Altamuro, Jennifer Lynne M. and Beatty, Anne, How Does Internal Control Regulation Affect Financial Reporting? (June 24, 2009). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=930690 or http://dx.doi.org/10.2139/ssrn.930690

Jennifer Lynne M. Altamuro (Contact Author)

Villanova University - Accountancy ( email )

United States

Anne L. Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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