Accounting function hierarchies and financial reporting quality

• Main Author: LI, Shuo
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: organization structure; financial reporting quality; corporate accountants; internal control; internal information quality; Accounting
• Online Access: https://ink.library.smu.edu.sg/etd_coll/569; https://ink.library.smu.edu.sg/context/etd_coll/article/1567/viewcontent/Thesis_Shuo_Submission_Apr06.pdf
• Institution: Singapore Management University

I examine how the hierarchical structure of a firm’s accounting function influences its financial reporting quality. Using information from accounting employees’ online resumes to infer the hierarchical layers in a firm’s accounting function, I find that a firm with a more hierarchical accounting function exhibits higher financial reporting quality. Further analysis shows a hierarchical accounting function is associated with a reduced likelihood of internal control weaknesses, in particular internal control weaknesses in the segregation of duties and accounting personnel matters. These findings suggest that a hierarchical accounting function enhances financial reporting quality through improving internal control. These effects are more pronounced when a firm’s accountants are of a lower level of education and when a firm’s accounting function spans a smaller geographical region. Collectively, my findings underscore the importance of the organizational structure of a firm’s accounting function in shaping its financial reporting quality.