本科毕业论文外文翻译
原文
Determinants and consequences of internal control in
firms: a contingency theory based analysis
Material Source:Springer Science+Business Media Author: Annukka Jokipii Abstract
In order to ensure the efficiency and effectiveness of activities, reliability of information and compliance with applicable laws, firms demand adequate internal control. However, several frameworks (COSO, CoCo etc.) assume that the need for internal control varies according to a firm’s characteristics. This concurs with contingency theory, which claims that each organization has to choose the most suitable control system by taking into account contingency characteristics. This study examines which contingency characteristics firms choose to adapt their internal control structure and whether it results in a more favorable assessment of the effectiveness of control by the management. While the components of internal control have been examined individually in the control literature, this paper attempts to shed light on internal control and place it in a broader context. The results, derived from a web-based survey of 741 Finnish firms, indicate that firms adapt their internal control structure to deal with environmental uncertainty and to achieve observed control effectiveness. Also the strategy has statistically significant effects on internal control structure.
Keywords Internal control Effectiveness Contingency theory Structural equation modeling
1 Introduction
It is generally believed that an internal control system reduces risks and helps firms ensure the reliability of financial statements and compliance with laws and regulations (Spira and Page 2003). So, an increasing number of business failures and some widely publicized frauds have encouraged firms to put more emphasis on their internal control systems, which are specific to their particular operating environment. Management is under increased pressure to enhance the effectiveness of internal
control and to effectively communicate this to the board of directors and shareholders (Sutton 2006). Reference groups like auditors, suppliers and customers are also interested in internal controls since they may affect long-term confidence in reporting, accountability and in the corporate form of organization (Rittenberg and Schwieger 2001).
Despite the fact that internal control is an essential factor affecting the firm, the evidence of the actual performance of an internal control structure within the organizational environment is almost non-existent, and the topic relatively unexplored by researchers, as noted by Kinney (2000). The professional literature on internal control has made progress toward developing international control
frameworks, but so far the amount of internal control research is limited. Selto and Widener (2004) analyze published research and professional articles and find that there were fewer internal control topics in the management control research literature than in practical literature. Increasing emphasis on the role played by internal control in business (Maijoor 2000), and the lack of existing research, creates new research needs and opportunities.
This study contributes to the understanding of the internal control structure and its observed effectiveness in company contexts. Even though the internal control frameworks (COSO, CoCo etc.) present a standardized structure and objectives for internal control, they still advise that the need for effective internal control varies according to a firm’s characteristics. However, neither frameworks nor prior literature provide an adequate picture of the relationships between a firm’s characteristics and its control system. Therefore, this study utilizes a contingency approach to examine the design of the internal control structure and its observed effectiveness in different contexts. The study examines relationships using structural equation modeling (SEM) and presents empirical results from 741 firms in Finland.
The results of this study add to the limited internal control research knowledge in several important respects. First, the study presents empirical findings using measurement models for internal control and its effectiveness in practice. There are organizations worldwide which have used internal control frameworks as a foundation for conducting activities. At any rate, there is little evidence about frameworks outside practice, and thus the models deserve more intensive research attention (COSO 1994; Selto and Widener 2004). With a few exceptions (e.g., Stringer and Carey 2002) earlier studies have usually concentrated on particular control elements, such as the control environment (D’Aquila 1998), communication
(Hooks et al. 1994) or risk assessment (Mills 1997). In this study the internal control concept is examined as a whole in different contexts. Second, the action of contingency theory on internal control has not been examined sufficiently within the prior literature even though that relationship plays a critical role in better understanding internal control within organizations. Third, there is a lack of knowledge about internal control from the point of view of management. The literature has so far concentrated on the external parties’ view (Felix 1998), although organizing internal control in the organization is in fact the responsibility of management. Therefore, in this study the perceptions of the management of the surveyed firms are the focus.
Fourth, this study examines important contingency characteristics that should be taken into account when focusing on the internal control in an organization. The aim is to determine which characteristics are helpful in explaining variations in an internal control system and its observed effectiveness. However, the model examined, yields different results when examined in a bivariate or in a multivariate setting. Therefore, this paper demonstrates how a contingency approach and SEM technique may be applied to internal control research. Understanding commonalities and differences in internal control structures and observed effectiveness in alternative contexts makes a significant contribution to the internal control discussion. Thus, the study provides a means to identify the special needs of different organizations.
The rest of the paper is organized as follows. The next section presents a research framework and the following section presents definitions of constructs and the literature related to the research questions. The fourth section explains the survey design and measurement of variables. Following that, the paper elaborates on the empirical analysis using the SEM method based on data collected from 741 Finnish firms. The sixth section includes a discussion of the results. The last section ends with the conclusions and limitations of the study.
2 Research framework
Control systems are designed to assist managers to achieve their firm’s goals and desired outcomes (Chenhall 2003). An internal control system potentially enhances a firm’s monitoring and reporting processes, as well as ensuring compliance with laws and regulations. In this way effective internal control has a critical role to play in a firm’s success. But, as we can see from the practical findings, internal control does not exist in vacuum. The COSO framework (1994, p. 18) states
that two organizations should not have similar internal control system unless the organizations are identical. The need for, and the specifics of, internal control systems may vary in organizational contexts. This statement presented in the internal control framework (COSO 1994) is analogous to contingency theory that claims that each organization has to choose the most suitable control system by taking into account contingency characteristics (see reviews in Chapman 1997; Chenhall 2003; Fisher 1995; Luft and Shields 2003). The contingency approach therefore offers an explanation for the variety of internal control systems found in practice.
However, contingency theory constitutes a novel approach to studying internal control and thus, theoretical fundamentals and chosen characteristics are derived from the contingency-based control literature. Consequently, management control is a major control sub-system in organizations which have been the subject of contingency theory research (Collier 2004). The research has mainly focused on the influence of contextual variables on management control system design (for example Langfield-Smith 1997; Chenhall 2003) and in this paper, the literature is reviewed along with an analysis of the research based on these studies. The aim is to use contingency theory to understand characteristics affecting internal control structures and its observed effectiveness rather than to elaborate on contingency theory as such.
To summarize, this paper examines if contingency characteristics affect the internal control structure and further, whether the internal control structure will result in a more favorable assessment of effectiveness if applied in alternative contexts.
3 Definition of constructs and research questions 3.1 Internal control framework
According to the broad view of internal control, it covers all aspects of an organization and there was a clear demand for a method of pulling together control concepts to form an integrated internal control framework. Well-known frameworks (COSO, CoCo, the Basle Framework, the Combined Code and the Turnbull Guidance) include a definition of effective internal control and present the components of the internal control structure. For example COSO (1994) states that internal control can be judged to be effective when the board of directors and management have reasonable assurances that they understand the extent to which the entity’s operational objectives are being achieved, the published financial statements are being prepared reliably, and the applicable laws and regulations are
being complied with. Therefore, in this study effectiveness of internal control is defined in terms of management’s perceptions of how well these three internal control objectives are met.
Similarly, in the frameworks a proper internal control structure is described in different terms, but the following five components can be identified:
1. The control environment component defines the ethos of an organization and the way it operates. This component refers to the creation of an atmosphere in which people can conduct their activities and carry out their control responsibilities. It creates the overall control culture in the firm.
2. The risk assessment component refers to the processes of dealing with the risks that pose a threat to achieving the firm’s objectives. It involves the identification, analysis and assessment of relevant risks.
3. The control activities component refers to policies, procedures and practices that assure management that the objectives are achieved and the risk mitigation strategies are carried out effectively.
4. The information and communication component ensures that relevant information is identified, captured and communicated in a form and time frame that allows personnel to carry out their duties and responsibilities effectively.
5. The monitoring component refers to a process of assessing the quality of control. It covers ongoing and periodical evaluations of the external supervision of internal controls by management or other parties outside the process.
In this research these five components define the internal control structure.2 It is stated in the frameworks (e.g., COSO 1994) that in order to have an adequate internal control system these components of internal control must be presented and function properly. Most of the research in this field focuses on examining particular control elements (D’Aquila 1998; Hooks et al. 1994; Mills 1997). Stringer and Carey (2002) examines all five components but use a qualitative approach and
examine the components separately.
In this study internal control components and observed effectiveness are used as latent variables in the analysis. It should be noted that the level of analysis is theoretical and specific individual controls or judgments are not the main focus of the study (see for example Felix and Niles 1988; Gadh et al. 1993). Furthermore, the level of analysis in the firms is at the corporate control level as applied by the CEO and other corporate officers (see e.g., Fisher 1998).
3.2 Organizational structure
公司内部控制的决定因素：权变理论为基础的分析【外文翻译】
