Effects of Materiality Assessment on Internal Controls over Financial Reporting Maturity

  •  Stefano Azzali    
  •  Tatiana Mazza    
  •  Luca Fornaciari    
  •  Laura Trinchera    


The paper investigates the effects of materiality assessment on Internal Controls over Financial Reporting (ICFR) Maturity. Based on private data collected from Italian listed companies, the paper aims to provide a unique score for assessing ICFR Maturity of a company and to assess the effect of quantitative and qualitative factors used to evaluate materiality. Specifically, it examines the processes used to identify significant entities, significant accounts and associating accounts with process. A Partial Least Squares (PLS) Path Modeling approach is used. Among quantitative factors, total assets, sales and earnings before taxation are the best accounting measures used by companies to select entities, while income statement value is more useful than the balance sheet in selecting significant accounts. This last activity is relatively more relevant that the others. Scoping results show: 1) the importance of identification of entities at group level; 2) multiple association accounts – processes is better than single association. Finally results show different effects on ICFR Maturity for the manufacturing and services industry and for the financial industry.

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