Adi Masli

External reputational penalties for CEOs and CFOs following information technology material weaknesses

Information Technology (IT) serves as the foundation for an effective internal control system. Deficiencies in internal controls related to IT (as evidenced by SOX 404 IT internal control material weaknesses (ITMW)) can diminish the quality of financial reporting and lead to the dismissal of executives. We investigate if the labor market penalizes executives for publicly announced IT failures. Specifically, we examine the employment opportunities that CEOs and CFOs receive following their termination from a firm reporting an ITMW. We find that executives who lose their jobs due to an ITMW are less likely to find an equivalent job compared to executives dismissed for material weaknesses not related to IT. We also determine that this is especially true for the CFO, perhaps suggesting that firms hold the CFO more responsible for IT failures, particularly as it relates to financial reporting and internal controls.

Senior executives' IT management responsibilities: serious IT-related deficiencies and CEO/CFO turnover

While the information systems scholarly and practice literatures both stress the importance of senior executive engagement with IT management, the recommendations for doing so remain, at best, limited and general. Examining the influence of serious IT-related deficiencies on CEO/CFO turnover within the post-SOX financial reporting context, specific CEO/CFO IT management responsibilities are identified: CEOs are shown to be held accountable for global IT management responsibilities, and CFOs are shown to be held accountable for demand-side IT management responsibilities. Implications for information systems research, management research, and information systems practice are provided.

Do Mutual Fund Investors Care about Auditor Quality

We study the influence of perceived auditor quality on investment decisions by bond mutual fund investors. Audits of bond mutual funds require significant auditor expertise. Fund managers estimate daily the fair market values of holdings that are often opaque and illiquid. Managers can use their discretion to manipulate their funds performance results. While it is known that investment flows into funds that report good past performance, little evidence exists about whether investors confidence in the reliability of fund financial reports is influenced by auditor quality. Using hand‐collected data from SEC filings, we find that the positive association between reported performance and investment flows is stronger for funds with auditors who are industry specialists and are longer‐tenured, as well as for funds that pay higher audit fees. We do not find that auditor office size strengthens the association. We also find that the presence of industry‐specialist auditors, long‐tenured auditors, and higher audit fees lead to additional disclosure in the form of emphasis‐of‐matter. This study contributes to the streams of research investigating perceived audit quality, fund investment decisions, and auditing for financial services. Les auteurs etudient linfluence de la qualite percue des auditeurs sur les decisions de placement des investisseurs des fonds communs dobligations. Les audits des fonds communs dobligations reclament des auditeurs des competences superieures. Les gestionnaires de fonds estiment quotidiennement les justes valeurs de marche dactifs qui se signalent souvent par leur opacite et leur illiquidite. Les gestionnaires peuvent se servir de leur pouvoir discretionnaire pour manipuler la performance quaffichent leurs fonds. Bien que, comme on le sait, les investissements affluent dans les fonds qui font etat dune bonne performance passee, il existe peu de donnees probantes quant a linfluence que peut avoir la qualite des auditeurs sur la confiance des investisseurs dans la fiabilite des rapports financiers des fonds. Utilisant des donnees quils tirent manuellement des documents deposes aupres de la SEC, les auteurs constatent que le lien positif entre linformation presentee au sujet de la performance et lafflux dinvestissements est plus marque dans le cas des fonds dont les auditeurs ont une specialisation sectorielle et un mandat de duree plus longue, ainsi que dans le cas des fonds qui paient des honoraires daudit plus eleves. Les auteurs nobservent pas de renforcement du lien attribuable a la taille du bureau de lauditeur. Ils constatent egalement que la presence dauditeurs ayant une specialisation sectorielle, de mandats de duree plus longue et dhonoraires daudit plus eleves mene a la communication dinformations supplementaires sous forme dexplications. Letude contribue aux recherches sur la qualite percue de laudit, les decisions de placement des fonds et laudit des services financiers.