Article2021

The Adoption and Consequences of COSO 2013

Amanuel F. Tadesse · Regina Rosa · Robert J. Parker

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

SYNOPSIS COSO has developed frameworks for firms to improve their internal controls with the objective of reducing fraud and managing enterprise risk. The frameworks are widely used by firms and their auditors to comply with the internal control requirements of the Sarbanes-Oxley Act (SOX). We investigate two issues involving the most recent COSO internal control framework (COSO 2013): the determinants of a firm's decision to adopt it in a timely manner; and the consequences of adoption on internal controls. In our sample, firms that report internal control problems under SOX 404, especially firms with information technology (IT) problems, are likely to be late adopters. Regarding the consequences of adoption, for late adopters, we find that firms using the revised COSO framework have a lower probability of reporting weaknesses in IT-related controls. We also find evidence that COSO 2013 adoption is helpful in remediating internal control weaknesses. Data Availability: Data are available from the public sources cited in the text.

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2007Determinants of weaknesses in internal control over financial reporting 2006The discovery and reporting of internal control deficiencies prior to SOX-mandated audits 2005The Disclosure of Material Weaknesses in Internal Control after the Sarbanes-Oxley Act 2009Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes 2007Market reactions to the disclosure of internal control weaknesses and to the characteristics of those weaknesses under section 302 of the Sarbanes Oxley Act of 2002 2007Internal Control Weakness and Cost of Equity: Evidence from SOX Section 404 Disclosures 2010Financial executive qualifications, financial executive turnover, and adverse SOX 404 opinions 2009Audit Committees, Boards of Directors, and Remediation of Material Weaknesses in Internal Control*

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