Impact of Internal Control Weaknesses on Financial Reporting Risk

Subject Areas : Financial Accounting

mohsen  azhdar ¹ (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)
mohsen  dastgir ² (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)
saeid  aliahmadi ³ (Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)

Received: 2021-12-03 Accepted : 2022-02-04 Published : 2023-01-01

Keywords: Internal control weaknesses, Keywords: Financial reporting risk, Quality of accruals,

Abstract :

The main role of financial reporting in capital markets is to provide the necessary conditions for the optimal allocation of resources and making correct and timely decisions. Achieving this goal is possible if the financial statements are consistent with economic realities or even have the slightest deviation from economic performance. However, over the past few decades, fraud detected in corporate financial reporting has increased the risk of financial reporting. Therefore, the current paper aims at investigating the impact of internal control weaknesses on financial reporting risk in companies listed on the Tehran Stock Exchange. In order to achieve the purpose of the research, using the method of systematic elimination of information related to 143 companies among the companies listed on the Tehran Stock Exchange in the period from 2009 to 2019 was collected. A multivariate regression model based on composite data was used to test the research hypothesis. The research findings show the significant positive impact of internal control weaknesses on financial reporting risk. The results indicate that reducing the weaknesses of internal control can reduce the risk of financial reporting and reduce information asymmetry and consequently improve accountability processes.

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