Article author:
Amira Pobrić
Year the article was released:
2022
Edition in this Year:
2
Article abstract:
DETERMINANTS OF THE QUALITY OF INTERNAL CONTROL OVER THE FINANCIAL REPORTING SYSTEM
Abstract: External stakeholders rely heavily on the information contained in the financial
statements when making business decisions. Given the risks they take in making
decisions based on this information, they expect the management to provide them with
quality financial statements. In order to be able to provide such financial statements,
the company’s management needs to establish quality internal control over the financial
reporting system. The task of this internal control is to reduce the risks of unintentional
errors in accounting records, as well as intentional manipulation of accounting
information contained in financial statements. Having in mind the importance of internal
control for providing reliable financial statements, the author intends to identify
the determinants of the quality of internal control in this article. In order to identify
these determinants, the author relies on the results of empirical research conducted in
countries where companies are required to disclose information on the quality of internal
control over financial statements. According to the author’s findings, the quality of
internal control is influenced by a number of factors concerning the characteristics of
corporate governance and the characteristics of the company in which internal control
is established. When it comes to the characteristics of corporate governance, the quality
of internal control over the financial reporting system is affected by the quality of the
board of directors, the quality of the audit committee and the quality of internal audit.
When it comes to the characteristics of the company, the author found that the quality
of internal control over the financial reporting system is influenced by the ownership
structure of the company, its size, age, financial stability, complexity, growth rate and
the fact that the company is in the process of restructuring.
statements when making business decisions. Given the risks they take in making
decisions based on this information, they expect the management to provide them with
quality financial statements. In order to be able to provide such financial statements,
the company’s management needs to establish quality internal control over the financial
reporting system. The task of this internal control is to reduce the risks of unintentional
errors in accounting records, as well as intentional manipulation of accounting
information contained in financial statements. Having in mind the importance of internal
control for providing reliable financial statements, the author intends to identify
the determinants of the quality of internal control in this article. In order to identify
these determinants, the author relies on the results of empirical research conducted in
countries where companies are required to disclose information on the quality of internal
control over financial statements. According to the author’s findings, the quality of
internal control is influenced by a number of factors concerning the characteristics of
corporate governance and the characteristics of the company in which internal control
is established. When it comes to the characteristics of corporate governance, the quality
of internal control over the financial reporting system is affected by the quality of the
board of directors, the quality of the audit committee and the quality of internal audit.
When it comes to the characteristics of the company, the author found that the quality
of internal control over the financial reporting system is influenced by the ownership
structure of the company, its size, age, financial stability, complexity, growth rate and
the fact that the company is in the process of restructuring.
Keywords: internal control over the financial reporting system, board of directors,
audit committee, internal audit, company’s characteristics
audit committee, internal audit, company’s characteristics