Bonnie K. Klamm

SOX 404 Reported Internal Control Weaknesses: A Test of COSO Framework Components and Information Technology

ABSTRACT: This paper examines internal controls, from both an information technology (IT) and non‐IT perspective, in relation to the five components of the Committee of Sponsoring Organizations Internal Control‐Integrated Framework (COSO 1992), as well as the achievement of one of COSOs three objectives‐reporting reliability. Our sample consists of 490 firms with material weaknesses reported under Sarbanes‐Oxley Section 404 during the first year of compliance. We classify the weaknesses by COSO component and as IT‐related or non‐IT‐related. Our results support the interrelationships of the COSO Framework. The results also show that the number of misstated accounts is positively related to the number of weak COSO components (i.e., scope) and certain weak COSO components (i.e., existence). Firms with IT‐related weak components report more material weaknesses and misstatements than firms without IT‐related weak components, providing evidence on the pervasive negative impact of weak IT controls, especially ...

Linking Business Processes and Transaction Cycles

Information technology enables companies to move from functional‐managed, cycle‐based organizations to process‐managed organizations. Despite this change, business classes continue to be organized along functional lines and do not provide an overall, integrating framework (Walker and Ainsworth 2001). As a result, students may not understand business processes and the relationship between business processes and accounting transaction cycles. This paper presents a tutorial for a fictitious pizza delivery company to help students understand business processes and link them with accounting transaction cycles. Designed for a first semester accounting information system class, this comprehensive tutorial covers data flow diagrams; flowcharts; and resources, events, and agents (REA) modeling. The tutorial includes review questions and exercises. Teaching notes and solutions follow the tutorial section.