Volume 1 Number 3 2020
Establishment Corporate Reportage Quality with Initiative Risk Management in the United States
Farzana Zannat1*, Tama Rani Kundu2
Journal of Primeasia 1 (3) 1-7 https://doi.org/10.25163/primeasia.1110400
Submitted: 31 December 2019 Revised: 05 March 2020 Accepted: 08 March 2020 Published: 10 March 2020
Abstract
Background: Financial reporting quality serves as the essential foundation which enables corporations to maintain openness and provide dependable information and fulfill their duty to stakeholders. The United States needs reliable disclosure systems because financial systems have grown more complex and regulatory frameworks have become more stringent. The strategic framework Enterprise Risk Management (ERM) helps organizations identify and assess risks which affect financial reporting quality so they can create mitigation plans.
Methods: The research study examined 150 publicly traded American companies through their financial data which became available during 2020. The evaluation of ERM adoption and reporting quality occurred through analysis of restatement frequency and audit adjustments and internal control effectiveness and disclosure transparency.
Results: Organizations that maintained complete ERM systems achieved better reporting quality. The implementation of ERM brought down restatement occurrences to 13% from 28% while also boosting internal control effectiveness to 4.5 out of 5 and making disclosure processes more open. The analysis revealed a direct correlation between the two variables since ERM explained 41% of the variance in reporting quality according to regression analysis and showed a positive relationship with r = 0.62. The research showed that regulated businesses achieved better ERM results than unregulated sectors.
Conclusion: ERM brings improvement to financial reporting quality through its ability to decrease errors and boost transparency and gain stakeholder trust. ERM functions as a strategic tool which goes beyond compliance to establish sustainable corporate governance through accountability and reliability.
Keywords: Enterprise Risk Management, Financial Reporting Quality, Corporate Governance, Risk Mitigation
References
Andersen, T. J. (2009). Effective risk management outcomes: exploring effects of innovation and capital structure. Journal of Strategy and Management, 2(4), 352–379. https://doi.org/10.1108/17554250911003845
Annamalah, S., Raman, M., Marthandan, G., & Logeswaran, A. (2018). Implementation of Enterprise Risk Management (ERM) framework in enhancing business performances in oil and gas sector. Economies, 6(1), 4. https://doi.org/10.3390/economies6010004
Arena, M., Arnaboldi, M., & Azzone, G. (2010). The organizational dynamics of Enterprise Risk Management. Accounting Organizations and Society, 35(7), 659–675. https://doi.org/10.1016/j.aos.2010.07.003
Baron, D. P. (2018). Disruptive entrepreneurship and dual purpose strategies: the case of Uber. Strategy Science, 3(2), 439–462. https://doi.org/10.1287/stsc.2018.0059
Baxter, R., Bedard, J. C., Hoitash, R., & Yezegel, A. (2012). Enterprise Risk Management Program Quality: Determinants, value Relevance, and the Financial Crisis. Contemporary Accounting Research, 30(4), 1264–1295. https://doi.org/10.1111/j.1911-3846.2012.01194.x
Beasley, M., Branson, B., & Pagach, D. (2015). An analysis of the maturity and strategic impact of investments in ERM. Journal of Accounting and Public Policy, 34(3), 219–243. https://doi.org/10.1016/j.jaccpubpol.2015.01.001
Bohnert, A., Gatzert, N., Hoyt, R. E., & Lechner, P. (2018). The drivers and value of enterprise risk management: evidence from ERM ratings. European Journal of Finance, 25(3), 234–255. https://doi.org/10.1080/1351847x.2018.1514314
Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2014). Enterprise Risk Management: Review, critique, and research directions. Long Range Planning, 48(4), 265–276. https://doi.org/10.1016/j.lrp.2014.07.005
Chang, S., Yen, D. C., Chang, I., & Jan, D. (2013). Internal control framework for a compliant ERP system. Information & Management, 51(2), 187–205. https://doi.org/10.1016/j.im.2013.11.002
Chen, H., Tang, Q., Jiang, Y., & Lin, Z. (2010). The Role of International Financial Reporting Standards in Accounting Quality: Evidence from the European Union. Journal of International Financial Management and Accounting, 21(3), 220–278. https://doi.org/10.1111/j.1467-646x.2010.01041.x
Cheung, Y., Jiang, P., & Tan, W. (2010). A transparency Disclosure Index measuring disclosures: Chinese listed companies. Journal of Accounting and Public Policy, 29(3), 259–280. https://doi.org/10.1016/j.jaccpubpol.2010.02.001
Cohen, J., Krishnamoorthy, G., & Wright, A. (2017). Enterprise Risk Management and the Financial Reporting Process: The experiences of audit committee members, CFOs, and external auditors. Contemporary Accounting Research, 34(2), 1178–1209. https://doi.org/10.1111/1911-3846.12294
Da Silva Etges, A. P. B., Grenon, V., De Souza, J. S., Neto, F. J. K., & Felix, E. A. (2018). ERM for Health Care Organizations: An Economic Enterprise Risk Management Innovation Program (E2RMhealth care). Value in Health Regional Issues, 17, 102–108. https://doi.org/10.1016/j.vhri.2018.03.008
Deumes, R., & Knechel, W. R. (2008). Economic incentives for voluntary reporting on internal risk management and control systems. Auditing a Journal of Practice & Theory, 27(1), 35–66. https://doi.org/10.2308/aud.2008.27.1.35
Farrell, M., & Gallagher, R. (2014). The valuation Implications of Enterprise Risk Management Maturity. Journal of Risk & Insurance, 82(3), 625–657. https://doi.org/10.1111/jori.12035
Gaa, J. C. (2009). Corporate governance and the responsibility of the Board of Directors for strategic financial reporting. Journal of Business Ethics, 90(S2), 179–197. https://doi.org/10.1007/s10551-010-0381-9
Guo, J., Huang, P., Zhang, Y., & Zhou, N. (2015). The effect of employee treatment policies on internal control weaknesses and financial restatements. The Accounting Review, 91(4), 1167–1194. https://doi.org/10.2308/accr-51269
Haywood, L. K., Forsyth, G. G., De Lange, W. J., & Trotter, D. H. (2017). Contextualising risk within enterprise risk management through the application of systems thinking. Environment Systems & Decisions, 37(2), 230–240. https://doi.org/10.1007/s10669-017-9627-8
McShane, M. K., Nair, A., & Rustambekov, E. (2011). Does enterprise risk management increase firm value? Journal of Accounting Auditing & Finance, 26(4), 641–658. https://doi.org/10.1177/0148558x11409160
Morris, J. J. (2011). The Impact of Enterprise Resource Planning (ERP) Systems on the Effectiveness of Internal Controls over Financial Reporting. Journal of Information Systems, 25(1), 129–157. https://doi.org/10.2308/jis.2011.25.1.129
Olayinka, A. E., Uwuigbe, U., Sylvester, E., Uwuigbe, O. R., & Amiolemen, O. O. (2019). Does enterprise risk management impact accounting quality? Evidence from the Nigerian financial institutions. Investment Management and Financial Innovations, 16(4), 16–27. https://doi.org/10.21511/imfi.16(4).2019.02
Palea, V. (2014). Fair value accounting and its usefulness to financial statement users. Journal of Financial Reporting & Accounting, 12(2), 102–116. https://doi.org/10.1108/jfra-04-2013-0021
Pérez-Cornejo, C., De Quevedo-Puente, E., & Delgado-García, J. B. (2019). How to manage corporate reputation? The effect of enterprise risk management systems and audit committees on corporate reputation. European Management Journal, 37(4), 505–515. https://doi.org/10.1016/j.emj.2019.01.005
Peters, G. F., & Romi, A. M. (2013). Does the Voluntary Adoption of Corporate Governance Mechanisms Improve Environmental Risk Disclosures? Evidence from Greenhouse Gas Emission Accounting. Journal of Business Ethics, 125(4), 637–666. https://doi.org/10.1007/s10551-013-1886-9
Rezaee, Z. (2004). CORPORATE GOVERNANCE ROLE IN FINANCIAL REPORTING. Research in Accounting Regulation, 17, 107–149. https://doi.org/10.1016/s1052-0457(04)17006-9
Sellers, R. D., Meckfessel, M. D., Jadallah, J., & Chaghervand, A. M. (2018). Variability of accounting restatement measurement in audit quality research. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3216124
Shad, M. K., Lai, F., Fatt, C. L., Klemeš, J. J., & Bokhari, A. (2018). Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework. Journal of Cleaner Production, 208, 415–425. https://doi.org/10.1016/j.jclepro.2018.10.120
Stewart, F. L., & Cioni, A. G. (2017). Holistic security risk management strategies for E&Ps: optimizing performance by reducing surface risk. The Journal of World Energy Law & Business, 11(1), 49–84. https://doi.org/10.1093/jwelb/jwx041
Steyn, M. (2014). Organisational benefits and implementation challenges of mandatory integrated reporting. Sustainability Accounting Management and Policy Journal, 5(4), 476–503. https://doi.org/10.1108/sampj-11-2013-0052
Trotman, A. J., & Duncan, K. R. (2017). Internal Audit Quality: Insights from Audit Committee Members, Senior Management, and Internal Auditors. Auditing a Journal of Practice & Theory, 37(4), 235–259. https://doi.org/10.2308/ajpt-51877
Vourvachis, P., & Woodward, T. (2015). Content analysis in social and environmental reporting research: trends and challenges. Journal of Applied Accounting Research, 16(2), 166–195. https://doi.org/10.1108/jaar-04-2013-0027
Zhao, X., & Singhaputtangkul, N. (2016). Effects of firm characteristics on enterprise risk management: case study of Chinese construction firms operating in Singapore. Journal of Management in Engineering, 32(4). https://doi.org/10.1061/(asce)me.1943-5479.0000434