Determinants of internal control characteristics influencing voluntary and mandatory disclosures: A Malaysian perspective

Abstract

Purpose

Concern has been raised over the dubious utility of internal control (IC) reports that contain vague disclosures of unclear meaning or that contain sweeping, albeit, and confusing statements. The purpose of this paper is to examine, from a Malaysian perspective, the internal audit control variables, which are directly responsible for the company to disclose their audit statements voluntarily or mandatorily and make it transparent to the shareholders and public.

Design/methodology/approach

A total of 121 publicly traded companies were selected using the systematic sampling method from the target population of 599 companies listed on the main board of Bursa Malaysia. The names of the heads of internal audit function of the sample were obtained from the Institute of Internal Auditors Malaysia. Structured interviews were conducted with 40 heads of internal audit function out of 121 companies in order to protect anonymity of the companies that did not feel comfortable responding in writing.

Findings

The significant findings of this paper are that those companies which are performing well disclose their IC reports voluntarily and demonstrate a perfect relationship between their IC opinions with high internal audit quality assurance. On the other hand, there is a high level of risk management among those companies who have mandatory IC disclosures. In addition, these companies conduct frequent audit committee meetings due to the pressure from the external auditors.

Originality/value

The studies on voluntary and mandatory disclosures by combining the characteristics of IC with audit committee effectiveness are seldom researched in the existing literature. The key contribution of this paper is the usage of IC disclosures coupled with an empirical and theoretical approach for examining the appropriate determinants influencing them.

Citation

Haron, H., Daing Nasir Ibrahim, D., Jeyaraman, K. and Hock Chye, O. (2010), "Determinants of internal control characteristics influencing voluntary and mandatory disclosures: A Malaysian perspective", Managerial Auditing Journal, Vol. 25 No. 2, pp. 140-159. https://doi.org/10.1108/02686901011008954