Author: Leung, Danson
Title: Is the omission of material weakness disclosures related to management and auditors?
Advisors: Tong, Wilson (AF)
Degree: D.B.A.
Year: 2018
Subject: Hong Kong Polytechnic University -- Dissertations
Financial statements
Corporate governance
Boards of directors
Corporations -- Auditing
Department: Faculty of Business
Pages: 71 pages : illustrations
Language: English
Abstract: Management is required to maintain adequate internal control over financial reporting while auditors test internal control over financial reporting for investor protection. I examine whether or not the omission of material weakness disclosures required by regulatory authorities, relates to auditors and management. I find empirical evidence that the likelihood of omitting the required material weakness disclosure is significantly and negatively related to the stock options exercised by the CEO. I argue that this is due to the desire to reduce regulatory audit risks, as regulators have been successful in linking executive profiteering to management misbehaviors. Furthermore, long-serving CEOs increase material weakness omission likelihood, as he/she has more ability to conceal internal control weaknesses. I note that higher auditor compensation is negatively related to the likelihood of material weakness omission and this is attributable to the ability to allocate more and better resources to the engagement. Auditor tenure is significantly and positively associated with material weakness disclosure omission probability as the incumbent auditors become more comfortable with the management team over time, and their effectiveness to detect material weakness disclosures decline. Empirical results produced by regressions confirm these arguments and robustness tests validate my regressions.
Rights: All rights reserved
Access: restricted access

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