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Predicting Internal Control Over Financial Reporting Quality

Year: 2026

Type: article

Abstract: ABSTRACT We draw on an extensive body of research on material weaknesses (MWs) in internal control over financial reporting and employ a robust empirical approach to develop a firm‐year measure of MW likelihood, denoted I ‐score. I ‐score reflects the likely presence of a MW and captures a key dimension of financial reporting quality. We present multiple MW models and demonstrate that I ‐score effectively predicts both MWs and financial restatements. Validated across multiple time periods, our I ‐scores significantly outperform those developed by prior research and are designed for wide applicability. Our results support the usefulness of I ‐score for academic researchers, investors, auditors, regulators and other financial market participants seeking a reliable, continuous measure of MW likelihood.

Source: International Journal of Auditing

DOI: 10.1111/ijau.70042

Authors: Patricia Navarro‐Velez, Robin W. Roberts, Patrick Ryu, Dana Wallace

Institutions: University of Nevada, Las Vegas, University of Central Florida, University of Manchester

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W7166686680

FWCI:

Cites: 75

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