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Financial information systems service providers and the internal control report

Financial information systems service providers and the internal control report Purpose – The purpose of this paper is to examine if a conflict of interest arises when auditors opine on an internal control system that consists of an information system recently designed and implemented by their own firm. Design/methodology/approach – A sample of companies was selected that had a financial information design and implementation service (FISD) disclosure in 2000‐2001 and a Section 404 internal control report issued in 2004‐2005. Both descriptive statistics and logistic regression results provide insight into the relation between the type of internal control report issued and the FISD provider. Findings – After considering the type of auditor change (forced versus voluntary) and the timing of the consulting division split‐offs, the results suggest that a material weakness internal control report is less likely if the same audit firm issued the internal control opinion and performed the FISD service. This result lends some support to the regulator's concern that certain types of non‐audit services (NAS) may cause auditors to audit their own work. Originality/value – This study contributes to the literature by examining if the performance of a certain type of NAS (FISD) resulted in auditors auditing their own work when opining on certain internal control systems. To the author's knowledge, this is the first study of its type in relation to auditors auditing their own work. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Financial information systems service providers and the internal control report

Albert L. Nagy
Managerial Auditing Journal , Volume 23 (6): 13 – Jun 27, 2008
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References (17)

Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0268-6902
DOI
10.1108/02686900810882129
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine if a conflict of interest arises when auditors opine on an internal control system that consists of an information system recently designed and implemented by their own firm. Design/methodology/approach – A sample of companies was selected that had a financial information design and implementation service (FISD) disclosure in 2000‐2001 and a Section 404 internal control report issued in 2004‐2005. Both descriptive statistics and logistic regression results provide insight into the relation between the type of internal control report issued and the FISD provider. Findings – After considering the type of auditor change (forced versus voluntary) and the timing of the consulting division split‐offs, the results suggest that a material weakness internal control report is less likely if the same audit firm issued the internal control opinion and performed the FISD service. This result lends some support to the regulator's concern that certain types of non‐audit services (NAS) may cause auditors to audit their own work. Originality/value – This study contributes to the literature by examining if the performance of a certain type of NAS (FISD) resulted in auditors auditing their own work when opining on certain internal control systems. To the author's knowledge, this is the first study of its type in relation to auditors auditing their own work.

Journal

Managerial Auditing Journal – Emerald Publishing

Published: Jun 27, 2008

Keywords: Financial information; Financial services; External auditing; Information systems; Legislation; United States of America

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