The expertise of internal accounting control personnel and financial statement conservatism: Korean evidence

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The purpose of this study is to analyze how the expertise of internal accounting control personnel impacts financial statement conservatism. This study analyzed companies listed on the Korean stock market. Listed companies in Korea have been disclosing information on internal accounting personnel since 2012. Using a fixed-effect regression model, an analysis of 3,276 firm-years from 2012 to 2018 shows a positive correlation between the expertise of internal accounting control personnel and financial statement conservatism. The results from Ball and Shivakumar’s (2006) CF, DD, and Jones models are all significant at the 1% level, enhancing the robustness of the study’s findings. The coefficients were 0.872, 0.869, and 0.846, and the t-values were 3.93, 3.95, and 3.83 in each model. This indicates that firms with CPAs (Certified Public Accountant) among their internal accounting control personnel show stronger tendencies toward conservatism compared to those without CPAs. Furthermore, an analysis based on the firm ownership structure reveals a positive correlation between internal accounting control personnel expertise and financial statement conservatism in a non-Chaebol subsample (coefficient = 1.043, t-value = 3.58 in CF model); however, the results in the Chaebol subsample were not significant. This suggests that while having CPAs involved in non-Chaebol firms’ internal control is effective, it is not effective in Chaebol companies that are highly influenced by their owners.

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    • Table 1. Descriptive statistics
    • Table 2. Correlations (p-values below)
    • Table 3. IC personnel investment and accounting conservatism (CF model)
    • Table 4. IC personnel investment and accounting conservatism (DD model)
    • Table 5. IC personnel investment and accounting conservatism (Jones model)
    • Table 6. IC personnel investment and accounting conservatism with Chaebol/non-Chaebol subsamples (CF model)
    • Table 7. IC personnel investment and accounting conservatism with Chaebol/non-Chaebol subsamples (DD model)
    • Table 8. IC personnel investment and accounting conservatism with Chaebol/non-Chaebol subsamples (Jones model)
    • Table A1. Variable definition
    • Conceptualization
      Ki wi Chung, Soo-Joon Chae
    • Formal Analysis
      Ki wi Chung, Soo-Joon Chae
    • Project administration
      Ki wi Chung
    • Resources
      Ki wi Chung, Soo-Joon Chae
    • Supervision
      Ki wi Chung, Soo-Joon Chae
    • Validation
      Ki wi Chung
    • Visualization
      Ki wi Chung
    • Writing – review & editing
      Ki wi Chung
    • Data curation
      Soo-Joon Chae
    • Funding acquisition
      Soo-Joon Chae
    • Investigation
      Soo-Joon Chae
    • Methodology
      Soo-Joon Chae
    • Software
      Soo-Joon Chae
    • Writing – original draft
      Soo-Joon Chae