Last modified: 2017-07-12
Abstract
Purpose The purpose of this research is to examine company’s characteristics that can affect the effectiveness of ICOFR. Effective ICOFR provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
Design/methodology/approach Research data were collected from 2007-2012 annual reports and financial statements of 176 firms listed firms in Indonesia Stock Exchange. The data were analyzed using panel regression models.
Findings Evidence suggesting that the effectiveness of ICOFR is influenced by company complexity, growth rate, company size, and company age. Complexity and growth rate reduce the effectiveness of the implementation of ICOFR wheres large companies and companies listed longer as public companies tend to have more effective ICOFR. On the other hand, family ownership, audit quality, and firm performance do not affect the effectiveness of ICOFR.
Research limitations/implications This research only use disclosures in annual reports to measure ICOFR effectiveness, where in Indonesia it is still not mandatory to disclose internal control weaknesses such as in United States. Primary data (questionnaries and interviews) may also enrich the measurement.
Practical implications This paper has the potential to provide inputs for capital market regulator in Indonesia for issuing a policy regarding ICOFR, by considering different firm characteristics will have different impact on ICOFR effectivenes.
Originality/value The main contribution of this paper is developiang a tool to measure implementation of internal control based on disclosure in annual reports, which mainly developed by reference to ICOFR framework (COSO, 2006).