Non-material Weaknesses Disclosure And Information Content Of Internal Control Evaluation Report

As an important part of the corporate governance mechanism,the effectiveness and efficiency of the design and operation of internal control is not only crucial for the enterprise to realize its own development strategy,but also can enhance the certainty of social and economic development.From 2008 to 2014,the disclosure requirements of China’s internal control evaluation report(self-assessment report)have gone through three stages: from voluntary to gradually mandatory and then to fully mandatory disclosure.Compared with the United States and other western countries,it is an important feature of China’s internal control information disclosure that there is no restriction on the importance of weakness disclosure.Does this feature have any impact on the information content of China’s self-assessment report? Is it necessary to disclose non-material weaknesses? If so,what will be the impact? What is the mechanism of its impact?In order to solve the above problems,this paper analyzes the impact of non-material weaknesses disclosure on the information content of the self-assessment report based on information asymmetry theory,signal transmission theory,efficient market hypothesis,and first-cause effect theory.Based on the rational economic man hypothesis and other theories,this paper studies whether the internal control weakness identification criteria formulated by the evaluators with discretion affect the information content of non-material weaknesses disclosure,puts forward assumptions and conducts empirical analysis.Based on the sample data of A-share listed companies for six consecutive years from 2015 to 2020,using multiple methods such as event study and multiple regression analysis,this paper studies the impact of the disclosure of non-material weaknesses on the information content of the self-assessment report,as well as the regulatory effect of the strict and lenient identification standard of internal control weaknesses,which is the basic work to classify the types of weaknesses,on the independent disclosure of non-material weaknesses and the information content of the self-assessment report,and based on the perspective of external environment,Research on the heterogeneity of analysts’ attention and investors’ attention on the above relationship.The study found that compared with the self-assessment report that did not disclose any weaknesses,the self-assessment report that separately disclosed non-material weaknesses has more information content;Compared with the self-assessment report that only discloses material weaknesses,the self-assessment report that discloses both material weaknesses and non-material weaknesses has no substantial difference in information content,and the self-assessment report that discloses material weaknesses and non-material weaknesses at the same time will not produce significant additional information;The looser the identification standard of internal control weaknesses is,the richer the information content of the self-assessment report that separately discloses non-material weaknesses is compared with no disclosure of any weaknesses.Further heterogeneity analysis found that,in the case of high attention of analysts and investors,the self-assessment report that separately disclosed non-material weaknesses is more useful for decision-making and has more abundant information content than that without disclosing any weaknesses.The possible innovations of this paper are as follows: First,the economic consequences of the disclosure of internal control weaknesses,the separate disclosure of material weaknesses,or the research and disclosure of non-financial report weaknesses are different in the existing literature.This paper studies the impact of non-material weaknesses disclosure on the information content of the self-assessment report,and deepens the research on the effectiveness of China’s internal control information disclosure system;Second,from the perspective of the strict width of the identification standard of internal control weaknesses,which is the basic work of dividing material weaknesses from non-material weaknesses,the impact of the independent disclosure of non-material weaknesses on the information content of the self-assessment report is studied,and the internal logic of the impact of the disclosure of non-material weaknesses on the information content of the self-assessment report is revealed;Thirdly,from the perspective of external environment,the impact of analyst’s attention and investor’s attention on the relationship between the independent disclosure of non-material weaknesses and the information content of the self-assessment report was studied,which deepened the understanding of the impact of non-material weaknesses disclosure on the information content of the self-assessment report in different situations,and enriched the research on the consequences of analyst’s attention and investor’s attention.