Abstract The issue of internal control reporting has recently been of considerable interest to the accounting profession, and has generated significant controversy. The Treadway Commission, the Public Oversight Board and the Board of Directors of the AICPA, among others, have suggested that such reporting can serve to enhance internal controls. Others have questioned the usefulness of such reports. This paper provides empirical evidence relevant to the debate about internal control reporting by examining the proportions of companies with two types of financial reporting problems which had prior internal control reports, and compares such proportions to the population proportions. Specifically, we examine companies which either were subject to an SEC enforcement action or corrected previously reported earnings. Results indicate that smaller companies with a financial reporting problem were much less likely to have had a management report on internal control than the population of small companies in the NAARS database.
McMullen et al. (Sun,) studied this question.