1、中文 4225 字 外 文 翻 译 外文出处 Auditing: A Journal of Practice & Theory, 2006, 25(2): 25-39 外文作者 Scott N.Bronson， Joseph V.Carcello， K.Raghunandan 原文： Firm Characteristics and Voluntary Management Reports on Internal Control SUMMARY:This study provides evidence on the nature of voluntary management reports
2、on internal control MRIC , and on the characteristics of firms issuing suchreports, before internal control reports were mandated under Section 404 of theSarbanes-Oxley Act. We examine the association between firm characteristics and the voluntary inclusion of an MRIC in the firms annual report.Our
3、analysis of 397 midsizedfirms in 1998 indicates that a voluntary MRIC is more likely for firms that are larger, have an audit committee that meets more often, have a greater level of institutional ownership, and have more rapid income growth. We find that a voluntary MRIC is less likely for companie
4、s with more rapid sales growth. Slightly more than one-third of our sample issues an MRIC. None of the voluntary MRICs mention any material weaknesses； no reports include an auditor attestation；less than half 41 percent of the reports include a statement that controls were effective；and only three o
5、f these reports include the criteria used to assess control effectiveness. Keywords:management reports on internal control； firm characteristics； corporate Governance. INTRODUCTION Section 404 of the Sarbanes-Oxley Act of 2002 SOX requires Securities and Exchange Commission SEC registrants to includ
6、e in their annual report a management report on the effectiveness of internal control over financial reporting 404 Report and auditor attestation on this management report. Section 404 has become arguably the most controversial element of SOX.Many SEC registrants and business associations have compl
7、ained about the costs associated with the internal control reporting requirement and have called for the revision if not repeal of Section 404 e.g., American Electronics Association AEA 2005； Advisory Committee on Smaller Public Companies 2006 . While SOX made 404 Reports mandatory, management repor
8、ts on internal control MRIC were voluntarily included in corporate annual reports prior to SOX. Since including an MRIC in the annual report potentially increased managements liability exposure under both Rules 10b-5 and 14a-9 of the securities laws, MRICs were presumably included to signal differen
9、ces in internal control quality across companies. In this paper, we examine the relation between firm characteristics and the voluntary inclusion of an MRIC in 1998 annual reports. Prior literature suggests that a high proportion of Fortune 100 companies report on controls in their annual reports Ra
10、ghunandan and Rama 1994 , while a low proportion of smaller companies report on controls McMullen et al. 1996 . Hence, we examine the relation between firm characteristics and the inclusion of a voluntary MRIC for mid-sized companies because we are looking for a sample that will provide us with reas
11、onable variation with respect to internal control reporting. We also provide descriptive information about the nature and content of these voluntary reports, and we compare and contrast them with the 404 reports. Our analysis includes 397 annual reports ?led by ?rms with total assets between $250 mi
12、llion and $5 billion. We ?nd that 36 percent of mid-sized companies include an MRIC in their 1998 annual report, and that the likelihood of an MRIC 1 increases with ?rm size, audit committee meeting frequency, institutional ownership, and income growth, and 2 decreases with sales growth. None of the
13、 reports mention any reportable conditions or material weaknesses； no reports include an auditor attestation； less than half 41 percent of the reports include a statement that controls were effective； and only three of these reports include the criteria used to assess control effectiveness. Our resu
14、lts illustrate the nature of internal control reporting that was provided under a voluntary system along with the ?rm characteristics associated with this reporting. The rest of the paper is organized as follows. The next section discusses the institutional background and develops the hypotheses. Ou
15、r research design and sample selection process follow. Results are then presented, followed by a summary and conclusions. INSTITUTIONAL BACKGROUND AND HYPOTHESES Section 404 of SOX requires all public companies to include an internal control report indicating managements responsibility for establish
16、ing and maintaining an adequate internal control structure, and managements assessment as to the effectiveness of the entitys internal control over financial reporting. Although mandatory internal control reporting for all public companies is new, many public companies had voluntarily included an MR
17、IC in their annual reports prior to SOX. For example, McMullen et al. 1996 report that the annual reports for approximately one-third of companies listed on National Automated Accounting Research System NAARS in 1993 included an MRIC. Benefits and Costs Associated with MRICs A firm might include an
18、MRIC for a number of reasonsto explicitly state managements responsibility for internal control,to state the objectives of the companys internal control system including describing various components of that system e.g., an independent audit committee, an internal audit function, etc. , and/or to in
19、dicate that management believes that internal controls are effective. All of these reasons are designed to reduce financial statement users uncertainty as to the quality of the companys financial reporting. Prior research indicates that financial statement users view voluntary MRICs as improving int
20、ernal controls, enhancing the oversight of controls, and adding information for decision making Hermanson 2000 . Although firms expect to benefit by issuing an MRIC, there are costs associated with this disclosure. Under Rule 10b-5 it is unlawful“to make any untrue statement of a material factin ord
21、er to make the statements made, in light of the circumstances under which they were made, not misleading” SEC 2005a . In addition, since the MRICs examined were included in annual reports distributed to shareholders, the statements made in these reports are subject to the SECs proxy disclosure rules
22、. Under Rule 14a-9 it is unlawful to makeany statement which . is false or misleading with respect to a material fact SEC 2005b . In comparison to Rule 10b-5, the applicability of Rule 14a-9 relating to the issuance of an MRIC is interesting because a plaintiff must only prove that the issuer was ne
23、gligent in its disclosure under Rule 14a-9, whereas a plaintiff must prove scienter under Rule 10b-5 Brown and Detore 1989 . A statement by management that internal controls are effective when they are not would expose management and the entity to additional legal liability； even the inclusion of an
24、 MRIC without an explicit effectiveness statement increases the firms exposure to legal liability. For example, MRICs without an effectiveness statement often contained a statement that thecorporation maintains a system of internal accounting controls designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements.”If management knew or should have known that the entity did not maintain such controls, or there was no reasonable basis for management to believe that the controls would
