The Impact of Enterprise Resource Planning 1

JOURNAL OF INFORMATION SYSTEMS Vol. 25, No. 1 Spring 2011 pp.
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American Accounting Association DOI: 10.2308/jis.2011.25.1.129
The Impact of Enterprise Resource Planning (ERP) Systems on the Effectiveness of Internal Controls over Financial Reporting
John J. Morris Kansas State University
ABSTRACT: Software vendors that market enterprise resource planning ERP systems have taken advantage of the increased focus on internal controls that grew out of the Sarbanes-Oxley SOX legislation by emphasizing that a key feature of ERP systems is the use of built-in controls that mirror a rms infrastructure. They argue that these built-in controls and other features will help rms improve their internal control over nancial reporting as required by SOX. This study tests that assertion by examining SOX Section 404 compliance data for a sample of rms that implemented ERP systems between 1994 and 2003. The results suggest that ERP-implementing rms are less likely to report internal control weaknesses ICW than a matched control sample of non-ERP-implementing rms. It also nds that this difference exists for both general entity-wide , and individual account-level controls. Keywords: enterprise resource planning; ERP; Sarbanes-Oxley; SOX; Section 404; internal control. Data Availability: The author will make available the list of rms used in the study. All other data are available from public sources.
I. INTRODUCTION he Sarbanes-Oxley Act of 2002 SOX requires companies to report on the effectiveness of their internal controls over nancial reporting as part of an overall effort to reduce fraud and restore integrity to the nancial reporting process. Software vendors that market enterprise resource planning ERP systems have taken advantage of this new focus on internal controls by emphasizing that a key feature of ERP systems is the use of built-in controls that mirror a rms infrastructure. They emphasize these features in their marketing literature, asserting
I thank the JIS editor, Paul John Steinbart, the anonymous associate editor, and two anonymous reviewers for their comments and suggestions that have strengthened this paper. I also thank participants at the 2009 Midyear Meeting of the AAA-IS Section, a Kansas State University Faculty Research Seminar, and members of my dissertation committee at Kent State University for comments and suggestions on earlier versions of this paper.
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that these systems will help rms improve the effectiveness of their internal controls as required by SOX.1 These vendor statements motivate an interesting empirical research question about the impact of ERP systems on internal control. Specically, are rms that implement ERP systems more or less likely to report internal control weaknesses in their annual reports than rms that do not? Relatively little empirical/archival research has been conducted in this specic area, because prior to SOX, internal control data did not have to be publicly reported. This study addresses that gap in the literature by examining internal control data that is now available for a sample of rms that have announced implementation of ERP systems and a control sample of similar rms that have not. Internal control is one of many mechanisms used in business to address the agency problem. Others include nancial reporting, budgeting, audit committees, and external audits Jensen and Payne 2003 . Studies have shown that internal control reduces agency costs Abdel-khalik 1993; Bareeld et al. 1993 , with some even arguing that rms have an economic incentive to report on internal control, even without the requirements of SOX Deumes and Knechel 2008 . Their argument assumes that providing this additional information to the principal shareholder about the behavior of the agent management reduces information asymmetry and lowers investor risk and, therefore, the cost of equity capital. Other research has found that weaknesses in internal controls are associated with increased levels of earnings management Chan et al. 2008; Ashbaugh-Skaife et al. 2008 . Earnings management is the agency problem that motivated SOX legislation in the rst place, specically earnings manipulation by Enron, WorldCom, etc. ERP systems provide a mechanism to deliver fast, accurate nancial reporting with built-in controls that are designed to ensure the accuracy and reliability of the nancial information being reported to shareholders. In addition to the increased assurances provided to the external principals shareholders about the behavior of the agents management , ERP systems should also help mitigate the agency problem between various levels of management in large corporations. The added transparency combined with the use of built-in controls should make it more difcult for agents at all levels to benet from unobservable behavior. It is possible, however, that rms implementing ERP systems may not take advantage of all the built-in control features, either for legitimate business reasons or because management wants to avoid the added transparency in order to manage manipulate earnings. By examining the effectiveness of these controls, this study not only extends the agency theory stream of research, it also examines this tension between earnings management and internal control with testable hypotheses related to overall internal controls, general entity-wide controls, and specic account-level controls. The study uses a sample of 108 rms that announced implementation of ERP systems between 1994 and 2003, and an equal number of control rms, matched by industry and size. The results provide evidence that ERP-implementing rms are less likely to report internal control weaknesses ICW than the non-ERP control rms. This study further examines factors contributing to ICW and nds that those related to general entity-wide controls and specic account-
SAP AG, the largest provider of ERP software in the world Eschinger 2006 , states the following in one of its brochures: Embedded system controls within mySAP ERP nancials include edit checks and tolerances for document accuracy, required and system-populated elds for document completeness, and checks to prevent duplication of accounting postings mySAP ERP Financials can help you reduce risk related to compliance with the U.S. SarbanesOxley Act SAP 2005 . Also, Oracle Corporation, the worlds second-largest provider of ERP software Brunelli 2006 , in one of its brochures, states the following: Each application in the Oracle Financials product family uses embedded controls to automate process ows and enforce compliance across the organization, such as cross-validation rules for master data, 2-, 3-, and 4-way purchase-order matching, sequential numbering, and the ability to centrally set quantity and price-tolerance limits during invoice processing. This automated approach reduces risk by enforcing business rules and simplies auditing activities by making it easier to test controls Oracle 2005 .
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level controls are both less likely to contribute to ICW in ERP rms than in non-ERP control rms. This study also nds evidence that the advantage for ERP rms strengthened over time, which suggests that rms may be implementing more of the built-in controls provided by ERP systems as they gain experience with the system. These ndings are important because both SOX and ERP have been the subject of much discussion and research in the academic and professional communities in recent years. Cost is often the common denominator, with the high cost of SOX compliance and the high cost of implementing ERP systems used as the basis for many research questions. These ndings provide evidence that ERP systems may contribute to improved internal controls, which is one of many arguments used in justifying the high cost of ERP systems. This study is believed to be the rst empirical/archival test of those claims, and provides information about the factors that contribute to internal control weaknesses ICW that both the academic and professional communities should nd interesting. For instance, the most often cited factor is accounting documentation, policy, and/or procedures. As expected, this factor is found less frequently for ERP rms than for the control rms, perhaps justifying the effort needed to document systems during the implementation process. This study also extends the research stream on the relationship between IT and agency theory, in particular the link between the signaling effect of internal control reporting to the nancial markets and the use of ERP systems to facilitate that process. The remainder of this paper is organized as follows: Section II summarizes prior research and develops the hypotheses, Section III describes the data selection process and the research methodology, Section IV presents empirical results, and Section V concludes. II. PRIOR RESEARCH AND HYPOTHESES DEVELOPMENT Internal Control Background Internal control has played a major role in moderating the agency problem in corporations for many years. Samson et al. 2006 document several internal control procedures used by the Baltimore and Ohio Railroad as early as 1831. In more recent times, internal control has been a subject of discussion whenever there is a prominent scandal in the corporate world. For instance, during the 1970s more than 400 corporations admitted making questionable or illegal payments to foreign government ofcials, politicians, and political parties, which led to enactment of the Foreign Corrupt Practices Act FCPA of 1977 Staggers 1977 . Among other things, the FCPA requires publicly traded companies to devise and maintain a system of internal accounting controls USC 1998 . During the 1980s, several high-prole audit failures led to creation of the Committee of Sponsoring Organizations of the Treadway Commission COSO , organized for the purpose of redening internal control and the criteria for determining the effectiveness of an internal control system Simmons 1997 . They studied the causal factors that can lead to fraudulent nancial reporting and developed recommendations for public companies, independent auditors, educational institutions, the SEC, and other regulators COSO 1985 . The product of their work is known as the COSO Internal ControlIntegrated Framework Simmons 1997 . The COSO framework broadly denes internal control as a process, effected by an entitys board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efciency of operations, reliability of nancial reporting, and compliance with applicable laws and regulations COSO 1992, 1 . It states that there is synergy and linkage among these components, forming an integrated system that reacts dynamically to changing conditions COSO 1992, 1 . The framework also points out that controls are most effective when they are built into the entitys infrastructure COSO 1992, 1 and further states that built in controls support quality and empowerment initiatives, avoid unnecessary costs and enable quick response to changing conditions COSO 1992, 1 .
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At the turn of the century, another group of corporate scandals resulted in enactment of the Sarbanes-Oxley Act of 2002 SOX which, among other things, requires a formal report on the effectiveness of internal controls. The COSO framework plays a key role in compliance because Section 404 of the Act requires companies to include in their annual report Form 10-K , a separate management report on the companys internal control over nancial reporting and an attestation report issued by a registered public accounting rm.2 Although other frameworks may be accepted, the SEC has specically stated that the COSO Framework satises SEC criteria and may be used as an evaluation framework for purposes of managements annual internal control evaluation and disclosure requirement by companies listed on U.S. stock exchanges Gupta and Thomson 2006, 28 . Prior Internal Control Research Although internal controls have played a major role in corporate governance for many years, empirical/archival research on internal controls was limited prior to SOX, mostly due to a lack of public data. Internal control was considered an internal issue and public companies were not required to disclose information about their internal control procedures.3 Following enactment of SOX, internal control-related empirical/archival research has signicantly increased. The added reporting requirements of Sections 302 and 404 have placed information in the public domain that researchers are using to examine numerous issues related to internal control and corporate governance. Section 302, which became effective in 2002, provided initial data that were used to test the relationship between internal control weaknesses and other rm characteristics Ge and McVay 2005; Ashbaugh-Skaife et al. 2007; Doyle et al. 2007 .4 Section 404, which requires a much more extensive review of internal controls, became effective in 2004 under a two-phase schedule. In the rst phase, compliance is required for companies known as accelerated lers5 in annual reports for scal years ending on or after November 15, 2004 SEC 2003 . The second phase, which includes compliance for all other companies, has been extended several times and is now effective for scal years ending on or after December 15, 2007, for the management report and June 15, 2010, for the auditor attestation report SEC 2009 .6 Although the exact form and language of the management report on internal controls may vary from one rm to another, the report must disclose if there are any material weaknesses in the internal controls over nancial reporting. Therefore, it is now possible to measure the effectiveness of internal controls by analyzing the material weaknesses disclosed in these reports. Section 404 has been used by researchers to examine such issues as the increased cost of audits Raghunandan and Rama 2006 , delays in audits Ettredge et al. 2006 ,
The internal control report requires specic language including: 1 a statement of managements assessment of the effectiveness of the companys internal control over nancial reporting, 2 a statement identifying the framework used by management to evaluate the effectiveness, and 3 a statement that the registered public accounting rm that audited the companys nancial statements included in the annual report has issued an attestation report on managements assessment of the companys internal control over nancial reporting SEC 2003 . The only exception was the required disclosure in Form 8-K of any internal control problems pointed out by predecessor auditors when companies changed auditors. Some researchers have used this source of data to examine the relationship between internal controls and other corporate governance measures. For instance, Krishnan 2005 uses these disclosures as a data source to compare internal control quality to audit committee quality. Section 302 requires the CEO and CFO to certify that their nancial statements present fairly, in all material respects, the nancial condition of their company, and that they have evaluated the effectiveness of their internal controls and disclosed any material weakness and any signicant changes in internal control procedures Ge and McVay 2005 . Accelerated lers are rms that have at least $75 million in market capitalization, have been subject to SEC reporting requirements for at least 12 calendar months, that previously have led at least one annual report, and that are not eligible to le its quarterly and annual reports on Form 10-QSB and 10-KSB. Also excluded are mutual funds and foreign rms that le Form 20-F. The AICPA reports that language was added to the Investor Protection Act of 2010, which was recently signed by the President, that would permanently exempt these nonaccelerated lers from the attestation report AICPA 2010 .
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percent of lers reporting deciencies Grant et al. 2008 , the relationship between internal control weaknesses ICW and the cost of equity Ogneva et al. 2007; Ashbaugh-Skaife et al. 2009 , and the relationship between ICW and earnings management Ashbaugh-Skaife et al. 2008; Chan et al. 2008 . Although internal control-related empirical/archival research is relatively new, there is a considerable body of prior literature related to corporate governance, most of it using an agency theory foundation Brennan and Soloman 2008 . Eisenhardt 1989 provides the theoretical basis for the use of monitoring mechanisms such as nancial reporting and audits to provide information to the principal about the behavior of the agent.7 ERP systems facilitate this monitoring process in two ways. First, they enable fast, accurate reporting of nancial information to the principal, but more importantly, they include features that facilitate implementation and enforcement of internal controls that are used to ensure the accuracy of nancial information being reported. One would expect rms that implement ERP systems to maximize use of these built-in control features to not only reduce agency costs, but to minimize the number of internal control weaknesses reported under SOX Section 404. These built-in controls are made possible in part because the systems are designed around the concept of a single, integrated system that captures data in a common database for use throughout the company. By contrast, most legacy systems, which evolved around the needs of individual functional areas, have information spread across dozens or even hundreds of separate computer systems Davenport 1998 . Although legacy systems may include some built-in controls, one would not expect these controls to be as effective as those that are designed into an integrated ERP system. For instance, a typical ERP system will include built-in controls for matching purchase orders, receiving documents, and invoices three-way match , taking advantage of the integrated nature of all three functional areas. Legacy systems, on the other hand, may have different applications for purchasing, receiving, and accounts payable that have some built-in control features, but do not communicate with each other. Consequently, manual controls would have to be used to supplement the built-in controls and physically, rather than electronically, match the documents prior to authorizing payment. Auditing Standard No. 5 AS No. 5 , issued by the Public Company Accounting Oversight Board PCAOB , provides some insight into the perceived relationship between information technology and internal controls. For instance, in Appendix B of AS No. 5, it states that entirely automated application controls are generally not subject to breakdowns due to human failure. This feature allows the auditor to use a benchmarking strategy benchmarking automated application controls can be especially effective for companies using purchased software when the possibility of program changes is remotee.g., when the vendor does not allow access or modication to the source code PCAOB 2007, B28, B32 . Since ERP systems are purchased software, in contrast to legacy systems, which are developed and maintained internally, company employees would most likely have access to the source code for legacy systems, but not for ERP systems. Given all of these factors, one would expect ERP systems to have a positive impact on the effectiveness of internal controls over nancial reporting. However, a counter argument could be made that just because companies implement ERP systems, they may not take advantage of all the built-in control features. It is possible, for instance, that during implementation, some of the control features might not be activated. Or, in a more sinister view, senior management may opt to override control features in order to manipulate data to manage earnings. This argument would be more consistent with Brazel and Dang 2008 , who
Eisenhardts 1989 second proposition states that when the principal has information to verify agent behavior, the agent is more likely to behave in the interest of the principal.
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argue that increased control by senior management over nancial data in a centralized ERP system will lead to an increase in earnings management. In support of their argument, they cite prior research that nds reductions in audit and internal control quality following ERP adoption Bagranoff and Vendrzk 2000; Wright and Wright 2002; Hunton et al. 2004; Janvrin et al. 2004; Brazel and Agoglia 2007 . But Brazel and Dang 2008 also point out that most of this research, including theirs, relates to implementations that took place during the early years of ERP adoption, prior to Sarbanes-Oxley, and argue that it is possible that these safeguards have since improved. Indeed, the increased emphasis on internal controls following SOX makes it likely that rms that adopted ERP systems early in the cycle have since taken advantage of the built-in features to improve their internal controls, which leads to the following hypothesis stated in the alternate form: H1: Firms that have implemented ERP systems will be less likely to report material weaknesses in their internal controls than nonimplementers. Looking only at total ICW may mask possible differences in subsets of controls. For instance, it is possible that even if H1 is supported from an overall internal control perspective, the counterintuitive behavior described above could still be taking place. If so, it may be uncovered by segregating the internal controls into those that are general entity-wide controls from those that are specic account-level controls. If management was overriding control features in order to manage earnings, then one would expect to nd more ICW related to general controls, even if the specic account-level controls are effective. This type of behavior should be uncovered during the audit process since this is an area of concern specically identied in AS No. 5, Paragraph 24, which states that entity-level controls include controls over management override. On the other hand, a stronger argument could be made that if general controls are in place and working, then one would expect to nd less ICW related to general controls. This would be more consistent with Chan et al. 2008 , who nd an association between internal control weaknesses and positive absolute discretionary accruals, and Ashbaugh-Skaife et al. 2008 , who nd that rms reporting internal control deciencies have lower quality accruals. This leads to the following hypothesis stated in the alternate form: H2: Firms that have implemented ERP systems will be less likely to report material weaknesses related to general entity-wide internal controls than nonimplementers. Another explanation could be that rms have just not taken full advantage of the built-in controls that are available. For instance, if the rms had opted not to activate certain control features during implementation, then one might expect to nd more ICW related to specic account-level controls, even if the general entity-wide controls are effective. However, if the controls are in place and implemented, then one would expect to see less ICW in these types of controls. Although a case could be made for either side of this argument given the pressures of SOX, it is more likely that rms will take advantage of these built-in controls, which leads to the following hypothesis stated in the alternate form: H3: Firms that have implemented ERP systems will be less likely to report material weaknesses related to specic account-level internal controls than nonimplementers. III. DATA SELECTION AND RESEARCH METHODOLOGY Sample Data Selection An empirical/archival methodology is used to test these hypotheses by examining management reports on the effectiveness of internal controls over nancial reporting, included in Form 10-K annual reports, compiled by Audit Analytics. The sample data are based on 108 ERP-
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implementing rms from 27 industry groups that announced implementation of ERP systems between 1994 and 2003. Panel A of Table 1 provides a summary of the sample selection process for these ERP-implementing rms. The process starts with the list of 91 ERP announcements made between 1994 and 1998 from Hayes et al. 2001 ,8 from which 36 rms were eliminated because they are no longer listed or data were otherwise not available. The second step in the process involves a search of all available newswire services using the LexisNexis service for years after 1998, searching on key phrases such as: ERP, Enterprise Resource Planning, and Enterprise Systems. This search found an additional 92 rm announcements yielding a total of 147 rms. This study examines the rst ve years that SOX 404 reporting was required, 20042008. Not all rms were required to le in all years for a number of reasons, including the fact that the effective date was for years beginning after November 15, 2004; therefore, only rms with November and December year-ends would be included for 2004. Also, some of the sample rms were not classied as accelerated lers due to market capitalization levels and/or ling status. Eliminating these observations leaves 108 rms and 377 rm-year observations for which SOX 404 reporting data are available in the Audit Analytics database. Following the recommendations of Barber and Lyon 1997 and the method used by Nicolaou 2004 , this study uses a matched pairs approach to select a control group. ERP-implementing rms are rst matched with other rms based on SIC code, then by total assets at the beginning of the implementation year, then by the availability of Compustat accounting data and Audit Analytics SOX 404 reporting data. Once a match is identied, a further search of LexisNexis Newswires is conducted for all available years using a combination of the rm name and several terms related to ERP systems.9 If no newswire records are found, the rm is used as a match for this study. If a record is found that indicates an ERP system may be in use, then the next closest rm in terms of total assets is used, and the process repeated.10 Panel B of Table 1 provides a breakdown of the 108 ERP rms by two-digit SIC code and implementation year. The sample is heavily concentrated around manufacturing rms that announced ERP system implementation from 19972000, consistent with the period of time that rms were concerned about Y2K compliance. Probit Regression Model This study uses a probit regression model adopted from Ogneva et al. 2007 with the number of internal control weakness ICW as the dependent variable, and an indicator variable for ERP implementers as the primary variable of interest. It includes control variables that prior research indicates are associated with ICW Ge and McVay 2005; Ashbaugh-Skaife et al. 2008; Doyle et al. 2007 plus one control variable specic to ERP systems. The resulting model is as follows: Prob COUNT_WEAKit = f + + + +
1ERPit
2FOREIGNit
3 M&Ait
4RESTRit
5LOSSit
6BIG4it
7LOGSEGit
8SALEGRWit
9INVTATit
10LOGMKTVit
11ZSCOREit
12LOGAGEit
13LOGERPAGEit
8 9
10
I would like to thank David C. Hayes and Jacqueline L. Reck for providing this list of rms. Terms include: 1 ERP, 2 Enterprise Resource Planning, 3 Enterprise Systems, 4 SAP, 5 Oracle, 6 QAD, 7 Baan, 8 Peoplesoft, 9 JD Edwards, and 10 Lawson. The specic vendors listed 410 represent the seven most common ERP systems identied in Nicolaou 2004 . If the record is an announcement, then the rm is added to the ERP sample set; however, if the document only implies that an ERP system is in use, it is rejected as a match, but not added to the ERP sample.
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TABLE 1 Summary of Sample Selection Process

Panel A: Sample Selection Process Initial ERP announcements from Hayes et al. 2001 Less rms no longer listed or data otherwise not available Remaining rms from Hayes et al. 2001 Additional ERP announcements collected from Lexis-Nexis search Total rms with ERP implementation announcements Firms not required to le Section 404 or Section 404 data not available Total rms announcing ERP implementations used in study Panel B: Distribution of ERP Firms by Two-Digit SIC Code and Implementation Year Two-Digit SIC Codes 94 95 96 97 98 13-Oil and Gas Extraction 20-Mfg: Food and Kindred Products 23-Mfg: Apparel 24-Mfg: Lumber and Wood Products 25-Mfg: Furniture and Fixtures 26-Mfg: Paper and Allied Products 27-Mfg: Printing and Publishing 28-Mfg: Chemicals 29-Mfg: Petroleum Rening 33-Mfg: Primary Metal Industries 34-Mfg: Fabricated Metal Products 35-Mfg: Ind. and Com. Machinery 36-Mfg: Electronic and Elect. Equip. 37-Mfg: Transportation Equipment 38-Mfg: Measuring and Control Instr. 39-Mfg: Misc. Manufacturing 42-Motor Freight Transportation 45-Transportation by Air 1 1 1 2 1 1 2 1 1 1 1 1 91 36 55 92 147 39 108
99 2 2 1 1 1 1 1 1 7 2 1 1 1
00 1 1
01
02 1
03
Total 5 6 3 1 4 4 3 13 1 2 2 20 12 1 8 1 1 2 Morris
1 1 1 1
1 2 1 2 2 2
1 1 1 1 2 2 4 5 1 1
2 2 1
(continued on next page)
Panel B: Distribution of ERP Firms by Two-Digit SIC Code and Implementation Year Two-Digit SIC Codes 94 95 96 97 98 48-Communications 50-Wholesale: Durable Goods 51-Wholesale: Non-Durable Goods 52-Retail: Bldg Materials, Hardware 54-Retail: Food Stores 59-Retail: Miscellaneous 67-Holding and Other Investment 73-Automotive Repair and Service 87-Engineering, Actg., R&D, Mgt Totals 1 1
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00 1 1
01
02
03
Total 2 2 1 1 1 4 1 6 1
1 1 1 1 5 4 13 25 1 2 1 2 28 12 3 1 10 6 4
108
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where: COUNT_WEAK ERP FOREIGN number of ICW reported; indicator variable equal to 1 for rms that have implemented ERP systems, else 0; indicator variable equal to 1 if the rm has a nonzero foreign currency translation Compustat mnemonic FCA-Foreign Exchange Income Loss , else 0; indicator variable equal to 1 if acquisitions reported on the Statement of Cash Flows Compustat mnemonic AQC-Acquisitions , else 0; indicator variable equal to 1 if at least one of the following Compustat mnemonics is not equal to zero: RCP-Restructuring Costs Pretax, RCA-Restructuring Costs After-Tax, RCEPS-Restructuring Costs Basic EPS Effect, RCD-Restructuring Costs Diluted EPS Effect , else 0; indicator variable equal to 1 if earnings before extraordinary items Compustat mnemonic IB-Income Before Extraordinary Items are less than 0, else 0; indicator variable equal to 1 if the rms auditor is one of the Big 4 rms, else 0; natural log of number of business segments computed from Compustat mnemonic SNAME-Segment Name in the Segment database ; percentage change in sales Compustat mnemonic SALE-Net Sales ;11 ratio of inventory over total assets Compustat mnemonic INVT-Inventories Total/AT Assets-Total ; natural log of market value of equity Compustat mnemonic MKVAL-Market Value ; Altmans Z-score Computed from Compustat data ;12 natural log of years the rm exists in the CRSP database;13 and natural log of the number of years since the ERP system was implemented.14
M&A RESTR
LOSS
BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE
The control variables from prior research that are hypothesized to be associated with ICW are categorized as: 1 complexity of operations FOREIGN, LOGSEG ; 2 organizational change M&A, RESTR ; 3 indicators of resource constraint LOSS, LOGMKTV ; 4 accounting applications measurement risk SALEGRW, INVTAT ; and 5 other factors including potential for bankruptcy ZSCORE , age of the company LOGAGE , and size of the audit rm BIG4 . One additional control variable is added specic to ERP systems; LOGERPAGE is used to control for
11
12
13 14
Ogneva et al. 2007 use an indicator variable if a rms sales growth is in the upper quintile of its industry, rather than percentage growth, which is the same approach used by Doyle et al. 2007 , who report that their results are not sensitive to the use of percentage growth instead. The indicator method does not change the overall results of this study either, although it does not provide as strong of a model t. ZSCORE A 3.3 B 0.99 C 0.6 D 1.2 E 1.4; where A EBIT/Total Assets; B Net Sales/Total Assets; C Market Value of Equity/Total Liabilities; D Working Capital/Total Assets; E Retained Earnings/Total Assets . Ogneva et al. 2007 used a decreasing deciles rank rather than the actual Z-score, which also would not impact the overall results of this study, only reduce the measure of model t. If rm not found in CRSP database, then age was based on information from either Compustat or the companys website. The implementation year is assumed to be the year before the announcement, the year of the announcement, or the year after the announcement, depending on whether the announcement is prospective or retrospective in nature and whether it is made early or late in the year.
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the possibility that rms with ERP systems that have been in place longer are more likely to have implemented more of the built-in internal control features. IV. EMPIRICAL RESULTS Univariate Analysis Table 2 provides a summary of univariate statistics for the key dichotomous and continuous variables used in this study, divided between the treatment rms ERP 1 and the control rms ERP 0 . The majority of rms that report material weaknesses in their internal controls only report one weakness, although that weakness may be attributed to a number of factors identied in the review process. Note, for instance, that the maximum number of reported weaknesses COUNT_WEAK is only six for control rms and eight for ERP rms, with mean values of only 0.212 and 0.148, and standard deviations of 0.650 and 0.664. Total assets for the ERP group are larger on average than that of the control group 2.465 versus 1.536; t 2.696 ; however, the results are not sensitive to this difference. Dropping 11 pairs with the largest absolute value differences in total assets results in a sample that is not statistically different in size 1.446 versus 1.345; t 1.364 and does not change the overall conclusions of this study. Table 3 is a correlation matrix of the variables used in the probit model. No signicant multicollinearity problems are indicated since all signicant correlations p 0.05 among the independent variables have r values less than 0.50, except for the Spearman correlation between LOSS and ZSCORE 0.508 . Additional diagnostic tests using variance ination factors conrm no signicant multicollinearity in that all VIF values are below 2.0. Table 4 summarizes the frequency of internal control weaknesses ICW reported by rms in their 10-K annual reports for the years 20042008, extracted from the Audit Analytics database. The rst three columns report frequencies, and the next three, proportions of rms reporting no ICW Weak 0 or at least one ICW Weak 1 for each year and in total for the ve years. The results shows that in total for all ve years, 81 rm-years out of the 754 10.7 percent reported at least one ICW, with 30 8 percent out of 377 ERP-implementing rm-years compared to 51 13.5 percent out of 377 of the control rm-years. The 5.5 percent proportional difference between ERP implementers and control rms has a Z-statistic of 2.47, which indicates a signicant difference at the 0.01 level based on a one-tailed test. The results for individual years reect signicant differences between ERP implementers and nonimplementers for 20062008, but no signicant differences in 2004 or 2005. These numbers compare to the following results for all lers reported by Audit Analytics during the rst four years that SOX Section 404 compliance was required: Year 1 16.9 percent; Year 2 10.3 percent; Year 3 9.1 percent; and Year 4 7.0 percent15 Cheffers et al. 2008 . Probit Regression Analysis Although the univariate results provide initial support for the rst hypothesis H1 in that a higher proportion of control rms reported internal control weaknesses than ERP-implementing rms, other variables may be contributing to the differences. To control for this, a probit regression analysis is run using the model described in the prior section that includes control variables that prior research has found to be associated with internal control weaknesses. The results are presented in Table 5. The probit procedure models the probability that levels of COUNT_WEAK have lower ordered values, which enables interpretation of parameter estimates based on the likelihood that they are associated with lower levels of weaknesses. Positive estimates indicate that
15
Audit Analytics denes Years 1 through 4 as November 15, 2004, through November 14, 2008, which corresponds to the effective date of the SOX Section 404 reporting requirements.
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TABLE 2 Firm Characteristics (Univariate Statistics)

ERP Mean Dichotomous WEAK SPE GEN FOREIGN M&A RESTR LOSS BIG4 Continuous COUNT_WEAK SPECIFIC GENERAL LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE TOTAL_ASSETS 0.135 0.135 0.129 0.371 0.395 0.387 0.271 0.923 0.212 0.342 0.469 0.714 0.115 0.141 6.998 4.226 3.243 2.400 1.536 Std. Dev. 0.342 0.342 0.337 0.484 0.490 0.488 0.445 0.267 0.650 0.963 1.473 0.638 0.208 0.126 1.777 3.582 0.642 0.173 2.059 0 (n Min 0 0 0 0 0 0 0 0 0 0 0 0 0.671 0 1.394 5.091 1.609 1.946 0.011 377) Med 0 0 0 0 0 0 0 1.000 0 0 0 0.693 0.089 0.115 6.942 3.314 3.178 2.398 0.678 Max 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 6.000 6.000 11.000 2.079 1.484 0.830 11.805 28.197 4.812 2.773 8.054 Mean 0.079 0.079 0.077 0.496 0.528 0.562 0.191 0.905 0.148 0.249 0.297 0.709 0.130 0.132 7.565 3.554 3.323 2.400 2.465 ERP Std. Dev. 0.271 0.271 0.267 0.501 0.500 0.497 0.394 0.294 0.664 0.935 1.236 0.702 0.333 0.107 1.872 5.332 0.646 0.173 4.380 1 (n Min 0 0 0 0 0 0 0 0 0 0 0 0 1.000 0 1.895 42.59 1.386 1.946 0.017 377) Med 0 0 0 0 1.000 1.000 0 1.000 0 0 0 0.693 0.100 0.108 7.625 3.221 3.367 2.398 0.872 Max 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 8.000 8.000 11.000 2.079 4.295 0.544 12.080 35.271 4.997 2.773 34.621
Variable Denitions: ERP 1 for rms that implemented ERP systems; 0 for control rms; WEAK indicator variable equal to 1 for rms reporting an ICW, else 0; SPE indicator variable equal to 1 for rms reporting a contributing factor related to specic account-level controls, else 0; GEN indicator variable equal to 1 for rms reporting a contributing factor related to general controls, else 0; FOREIGN indicator variable equal to 1 if the rm has a nonzero foreign currency translation Compustat mnemonic FCA , else 0; M&A indicator variable equal to 1 if acquisitions reported on the Statement of Cash Flows Compustat mnemonic AQC , else 0; RESTR indicator variable equal to 1 if at least one of the following is not equal to 0 Compustat mnemonics RCP, RCA, RCEPS, RCD , else 0; LOSS indicator variable equal to 1 if earnings before extraordinary items Compustat mnemonic IB are less than 0, else 0; BIG4 indicator variable equal to 1 if the rms auditor is one of the Big 4 rms, else 0; COUNT_WEAK number of material weaknesses recorded in Audit Analytics for each rm-year; SPECIFIC number of contributing factors related to specic account-level controls; GENERAL number of contributing factors related to general controls; LOGSEG natural log of number of business segments Compustat mnemonic SEGNUM ; SALEGRW percentage change in sales Compustat mnemonic SALE ; INVTAT ratio of inventory over total assets Compustat mnemonic INVT/AT ; LOGMKTV natural log of market value of equity Compustat mnemonic MKVAL/MKVALM ; ZSCORE Altmans Z-score; LOGAGE natural log of years the rm exists in the CRSP database; LOGERPAGE natural log of the number of years since the ERP system was implemented; and TOTAL_ASSETS total assets billions beginning of implementation year n 108 for each group .
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TABLE 3 Correlation Matrix: Pearson above the Diagonal and Spearman Below
1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 COUNT_WEAK ERP FOREIGN M&A RESTR LOSS BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE 1.000 0.089 0.015 0.004 0.921 0.040 0.271 0.012 0.733 0.167 0.0001 0.048 0.187 0.007 0.849 0.031 0.395 0.003 0.927 0.176 0.0001 0.092 0.011 0.050 0.174 0.042 0.247 2 0.048 0.184 1.000 0.126 0.001 0.133 0.000 0.175 0.0001 0.094 0.010 0.033 0.364 0.005 0.889 0.012 0.738 0.018 0.616 0.156 0.0001 0.019 0.604 0.057 0.120 0.000 1.000 3 0.041 0.265 0.126 0.001 1.000 0.027 0.455 0.175 0.0001 0.061 0.096 0.021 0.567 0.019 0.611 0.007 0.845 0.039 0.279 0.076 0.038 0.103 0.005 0.021 0.562 0.031 0.393 4 0.037 0.305 0.133 0.000 0.027 0.455 1.000 0.063 0.085 0.084 0.021 0.066 0.069 0.042 0.246 0.112 0.002 0.058 0.113 0.222 0.0001 0.123 0.001 0.086 0.019 0.073 0.044 5 0.006 0.874 0.175 0.0001 0.175 0.0001 0.063 0.085 1.000 0.166 0.0001 0.058 0.111 0.115 0.002 0.252 0.0001 0.001 0.971 0.035 0.340 0.262 0.0001 0.005 0.901 0.031 0.390 6 0.161 0.0001 0.094 0.010 0.061 0.096 0.084 0.021 0.166 0.0001 1.000 0.191 0.0001 0.021 0.571 0.279 0.0001 0.026 0.477 0.436 0.0001 0.508 0.0001 0.115 0.002 0.012 0.746 7 0.060 0.102 0.033 0.364 0.021 0.567 0.066 0.069 0.058 0.111 0.191 0.0001 1.000 0.036 0.329 0.118 0.001 0.101 0.006 0.308 0.0001 0.076 0.036 0.016 0.656 0.015 0.686
(continued on next page) 141
8 Journal of Information Systems American Accounting Association Spring 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 COUNT_WEAK ERP FOREIGN M&A RESTR LOSS BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE 0.027 0.458 0.004 0.918 0.019 0.612 0.040 0.267 0.120 0.001 0.018 0.617 0.036 0.318 1.000 0.037 0.309 0.114 0.002 0.056 0.125 0.076 0.038 0.198 0.0001 0.073 0.045
9 0.004 0.909 0.028 0.441 0.023 0.523 0.113 0.002 0.125 0.001 0.179 0.0001 0.074 0.042 0.029 0.433 1.000 0.084 0.022 0.259 0.0001 0.260 0.0001 0.073 0.046 0.015 0.686
10 0.040 0.279 0.040 0.270 0.078 0.032 0.021 0.561 0.076 0.038 0.001 0.989 0.105 0.004 0.025 0.497 0.076 0.037 1.000 0.218 0.0001 0.107 0.003 0.044 0.228 0.105 0.004
11 0.165 0.0001 0.154 0.0001 0.061 0.095 0.210 0.0001 0.063 0.083 0.452 0.0001 0.339 0.0001 0.041 0.265 0.148 0.0001 0.254 0.0001 1.000 0.294 0.0001 0.217 0.0001 0.032 0.387
12 0.098 0.007 0.074 0.043 0.033 0.361 0.002 0.950 0.246 0.0001 0.350 0.0001 0.048 0.186 0.099 0.006 0.115 0.002 0.005 0.896 0.220 0.0001 1.000 0.018 0.630 0.085 0.019
13 0.029 0.421 0.062 0.089 0.012 0.739 0.097 0.008 0.012 0.752 0.137 0.000 0.024 0.516 0.173 0.0001 0.053 0.146 0.029 0.422 0.224 0.0001 0.006 0.868 1.000 0.054 0.137
14 142 0.062 0.091 0.000 1.000 0.068 0.061 0.065 0.073 0.045 0.222 0.016 0.659 0.008 0.821 0.107 0.003 0.012 0.745 0.031 0.399 0.019 0.595 0.018 0.624 0.054 0.136 1.000
Variable Denitions: COUNT_WEAK number of internal control weaknesses reported; ERP indicator variable equal to 1 for rms that have implemented ERP systems, else 0; FOREIGN indicator variable equal to 1 if the rm has a nonzero foreign currency translation Compustat mnemonic FCA , else 0; M&A indicator variable equal to 1 if acquisitions reported on the Statement of Cash Flows Compustat mnemonic AQC), else 0;
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RESTR LOSS BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE
indicator variable equal to 1 if at least one of the following is not equal to 0 Compustat mnemonics RCP, RCA, RCEPS, RCD , else 0; indicator variable equal to 1 if earnings before extraordinary items Compustat mnemonic IB are less than 0, else 0; indicator variable equal to 1 if the rms auditor is one of the Big 4 rms, else 0; natural log of number of business segments Compustat mnemonic SEGNUM ; percentage change in sales Compustat mnemonic SALE ; ratio of inventory over total assets Compustat mnemonic INVT/AT ; Natural log of market value of equity Compustat mnemonic MKVAL/MKVALM ; Altmans Z-score Computed from Compustat as ZSCORE A 3.3 B 0.99 C 0.6 D 1.2 E 1.4. Where A EBIT/Total Assets; B Net Sales/Total Assets; C Market Value of Equity/Total Liabilities; D Working Capital/Total Assets; E Retained Earnings/Total Assets ; natural log of years the rm exists in the CRSP database; and natural log of the number of years since the ERP system was implemented.
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TABLE 4 Frequency of Internal Control Weaknesses

Frequency ERP 20042008 Weak 0 Weak 1 Totals 2004 Weak Weak Totals 2005 Weak Weak Totals 2006 Weak Weak Totals 2007 Weak Weak Totals 2008 Weak Weak Totals 326 51 377 0 ERP 347 30 377 1 Total 673 81 754 ERP 0 Proportions ERP 1 Total 89.3% 10.7% 100.0% Diff Z-stat
86.5% 13.5% 100.0%
92.0% 8.0% 100.0%
5.5%
2.47***
0 1
54 17 71
59 12 71
113 29 142
76.1% 23.9% 100.0%
83.1% 16.9% 100.0%
79.6% 20.4% 100.0%
7.0%
1.04
0 1
78 12 90
80 10 90
158 22 180
86.7% 13.3% 100.0%
88.9% 11.1% 100.0%
87.8% 12.2% 100.0%
2.2%
0.46
0 1
76 10 86
81 5 86
157 15 172
88.4% 11.6% 100.0%
94.2% 5.8% 100.0%
91.3% 8.7% 100.0%
5.8%
1.35*
0 1
79 9 88
85 3 88
164 12 176
89.8% 10.2% 100.0%
96.6% 3.4% 100.0%
93.2% 6.8% 100.0%
6.8%
1.79**
0 1
39 3 42
42 0 42
81 3 84
92.9% 7.1% 100.0%
100.0% 0.0% 100.0%
96.4% 3.6% 100.0%

0
7.1%
1.76**
*, **, *** Prob

Weak Weak ERP ERP
Z at 0.10, 0.05, and 0.01 levels, respectively, such that Proportion ERP 0: Firms with no Internal Control Weaknesses in the Audit Analytics database. 1: Firms with at least one Internal Control Weakness in the Audit Analytics database. 1: Firms that implemented ERP systems between 1994 and 2003. 0: Control rms that have not reported implementation of an ERP system.
ERP
0.
variables are more likely to be associated with lower levels of material weaknesses, and negative estimates indicate that variables are less likely to be associated with lower levels of material weaknesses. Therefore, it is expected that the primary variable of interest ERP will be positive, indicating that ERP implementers ERP 1 are more likely to report lower levels of material weaknesses than control rms ERP 0 . As for the control variables, rms with foreign operations, merger and acquisition activity, restructuring activity, losses, more segments, more sales growth, and higher inventory are expected to have negative estimates, indicating that they are less likely to be associated with lower levels of material weaknesses than their counterparts. By
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TABLE 5 Probit Regression Results

Exp. Sign ? Std. Error 1.9089 0.2668 0.2573 0.2643 0.2640 0.3101 0.4209 0.1974 0.2918 1.0122 0.0931 0.0248 0.1958 0.6917
Parameter Intercept ERP FOREIGN M&A RESTR LOSS BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE Log Likelihood Observations
Estimate 1.8123 0.5732 0.0514 0.6106 0.0353 0.4735 0.1257 0.0319 0.5363 0.1786 0.3195 0.0390 0.0543 0.7435 322.560 754
Wald
0.9000 4.6162** 0.0398 5.3397** 0.0179 2.3311* 0.0892 0.0262 3.3790** 0.0311 11.7866*** 2.4752* 0.0770 1.1552
*, **, *** Indicate signicance at 0.10, 0.05, and 0.01 levels, respectively, using one-tailed test where sign is predicted. Condence limits are based on 95 percent Wald Condence Limits.
Prob COUNT_WEAKit = f + + +
1ERPit
2FOREIGNit
3 M&Ait
4RESTRit
5LOSSit
6BIG4it
7LOGSEGit + 12LOGAGEit
8SALEGRWit +
9INVTATit +
10LOGMKTVit +
11ZSCOREit
13LOGERPAGEit
Variable Denitions: COUNT_WEAK number of internal control weaknesses reported; ERP indicator variable equal to 1 for rms that have implemented ERP systems, else 0; FOREIGN indicator variable equal to 1 if the rm has a nonzero foreign currency translation Compustat mnemonic FCA , else 0; M&A indicator variable equal to 1 if acquisitions reported on the Statement of Cash Flows Compustat mnemonic AQC , else 0; RESTR indicator variable equal to 1 if at least one of the following is not equal to 0 Compustat mnemonics RCP, RCA, RCEPS, RCD , else 0; LOSS indicator variable equal to 1 if earnings before extraordinary items Compustat mnemonic IB are less than 0, else 0; BIG4 indicator variable equal to 1 if the rms auditor is one of the Big 4 rms, else 0; LOGSEG natural log of number of business segments Compustat mnemonic SEGNUM ; SALEGRW percentage change in sales Compustat mnemonic SALE ; INVTAT ratio of inventory over total assets Compustat mnemonic INVT/AT ; LOGMKTV natural log of market value of equity Compustat mnemonic MKVAL/MKVALM ; ZSCORE Altmans Z-score Computed from Compustat as ZSCORE A 3.3 B 0.99 C 0.6 D 1.2 E 1.4. Where A EBIT/Total Assets; B Net Sales/Total Assets; C Market Value of Equity/Total Liabilities; D Working Capital/Total Assets; E Retained Earnings/Total Assets ; LOGAGE natural log of years the rm exists in the CRSP database; and LOGERPAGE natural log of the number of years since the ERP system was implemented.
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contrast, rms that use Big 4 audit rms have higher market value, higher Z-scores, are older, and have older ERP systems are expected to have positive estimates, indicating that they are more likely to be associated with lower levels of material weaknesses. The primary variable of interest ERP is positive and signicant at the 0.05 level, as expected, indicating that ERP-implementing rms are more likely to be associated with lower levels of material weaknesses. Control variables with signicant results in the expected direction include: M&A, LOSS, SALESGRW, LOGMKTV, and ZSCORE, indicating that rms with M&A activity, losses, higher sales growth, lower market values, and lower Z-scores are less likely to report lower levels of material weaknesses. The variable related to age of the ERP implementation LOGERPAGE is not signicant, which does not support the argument that older implementations may be using more of the control features. These results may be impacted by low power due to the relatively small sample size. The model is a good t, with a Log Likelihood of 322.560. Sensitivity Analysis An argument can be made that the number of material weaknesses counted may not be the best measure of internal control, because even if only one weakness is found, the company has an internal control problem that must be reported. As a sensitivity analysis, a logistic regression was run using a dichotomous variable WEAK set to 1 if any material weaknesses were found and 0 if none were found. The results untabulated are very similar to the probit regression with the variable of interest ERP signicant at the 0.05 level, and the same control variables signicant at similar levels as with the probit regression. To test the sensitivity of results to the size difference discussed in the previous section, the regression was run using a sub-set of the observations excluding the 11 pairs of rms with the largest absolute value difference in total assets. The untabulated results were essentially the same, with the coefcient on the ERP variable still signicant at the 0.05 level. Other tests of model assumptions, including: a Hosmer and Lemeshow Goodness-of-Fit test, a Percent Concordant test, analysis of classication tables, analysis of correlations, and test for multicollinearity, all validate the model. These results further support the rst hypothesis H1 in that ERP-implementing rms are less likely to report material weaknesses than the control rms, after controlling for other variables found in prior research to contribute to ICW. Factors Contributing to Material Weakness Determination To test the second and third hypotheses, it is necessary to examine the specic factors contributing to material weakness determination. Audit Analytics includes in their database a listing of these factors with detailed descriptions for each. It is important to understand that there is no specic standardized requirement for companies or their auditors to categorize the factors that lead to a determination of internal control weakness. These factors are classied by Audit Analytics after reading the compliance document. The Appendix is an abridged example of an audit report issued by PricewaterhouseCoopers, LLP, for Pride International, Inc. for December 31, 2004, which concurs with managements determination that a material weakness has been identied. The appropriate section of the audit report has been underlined to illustrate the point. Based on this language, Audit Analytics identied 11 factors contributing to internal control weakness, which are listed at the end of the sample audit report. These contributing factors are not considered to be 11 instances of ICW, but 11 factors that contribute to a single ICW. A panel of experts was used to review the various factors dened by Audit Analytics and identify those that relate to general entity-wide controls and those that relate to specic accountlevel controls. The panel consisted of three members of the accounting profession familiar with
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SOX Section 404 reporting and internal controls. One is a partner for a Big 4 CPA rm, one is a supervisor for a large regional CPA rm, and one is a supervisor for a Fortune 50 corporation with internal audit experience. Table 6 provides a summary of factors contributing to general entitywide internal control weaknesses in Panel A and specic account-level internal control weaknesses in Panel B for the 754 rm-year observations. The EP# column identies the number of expert panel members that were in agreement 2 or 3 as to which category was appropriate. The table shows the frequency with which each of the factors has been cited and the proportion of the total represented by that frequency. The most often cited factor, accounting documentation, policy and/or procedures was cited in 50 6.63 percent of the control rm-years and only 30 3.98 percent of the ERP rm-years, with the differences statistically signicant, at a p-value 0.01 level. This result indicates that control rms will report more of these factors than the ERP-implementing rms. Although many of the factors are not statistically different between the ERP implementers and control rms, three of the general entity-wide factors and six of the specic account-level factors are at least marginally signicant. In the general entity-wide category, they include in addition to the documentation factor discussed above : accounting personnel resources, competency/training and material and/or numerous auditor/YE adjustments. The specic account-level category includes: 1 restatement or non-reliance of company lings, 2 restatement of previous 404 disclosures, 3 intercompany/investment w/subsidiaries/afliates issues, 4 nancial derivatives/hedging FAS No. 133 accounting, 5 tax expense/benets/ deferral/other FAS No. 109 issues, and 6 Pension and other post-retirement benet issues. Table 7 summarizes further analysis of the contributing factors. Panel A presents frequencies of rm-years reporting general versus specic contributing factors to ICW, while Panel B evaluates the mean values of total occurrences for each category. General entity-wide factors are found in 49 13.0 percent of control rm-year reports versus 29 7.7 percent of the ERP rmyear reports. The 5.3 percent difference is statistically signicant at the p 0.01 level. Similar results are shown for the specic account-level factors, with 51 13.5 percent of control rmyear observations and 30 8.0 percent of ERP rm-year observations, with the 5.5 percent difference also signicant at the p 0.01 level. Comparing the mean values in Panel B yields similar results, with both general and specic averages signicantly larger for control rm-years than the ERP rm-years. Note also that for control rms, the average number of general entity-wide factors is signicantly higher than the average number of specic account-level factors, whereas the differences are not signicant for the ERP rms. Table 8 summarizes results of probit regressions of factors related to general entity-wide and specic account-level control weaknesses, using the previous model from Table 5 to test H2 and H3. The primary variable of interest ERP is positive and signicant at the 0.05 level in both cases, rejecting the null hypotheses, indicating that rms that implemented ERP systems were more likely to report lower levels of both general entity-wide and specic account-level control-related weaknesses than the control group. Similar to the previous probit regressions, four of the control variables related to general entity-wide controls and ve of the control variables related to specic account-level controls are signicant with the expected sign, indicating they are impacting the results similar to prior research. Firms with M&A activity, higher sales growth, lower market value, and lower Z-scores are less likely to report higher levels of general entitywide control-related factors. Likewise, rms with M&A activity, losses, higher sales growth, lower market value, and lower Z-scores are less likely to report higher levels of specic accountlevel control-related factors. The overall model is reasonable, with log likelihood of 358.314 and 358.685 for general and specic models, respectively.
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TABLE 6 Factors Contributing to Internal Control Weaknesses

Panel A: General (Entity-Wide) Factors AA Ref Inadequate disclosure controls timely, accuracy, comp. Senior management competency, tone, reliability Accounting documentation, policy and/or procedure Insufcient or nonexistent internal audit function Scope disclaimer of opinion or other limitations Ethical or compliance issues with personnel Information technology, software, security, access Segregations of duties/design of control personnel Accounting personnel resources, compet./training Unspecied/unidentied/inapplicable FASB/GAAP Material and/or numerous auditor/YE adjustments Fin Stmt, footnote, U.S. GAAP, segment disclosure Remediation of material weakness identied Total General Entity-Wide Factors Panel B: Specic (Account-Level) Factors Lease, FAS No. 5, legal, contingency, and commit issues Restatement or nonreliance of company lings Cash ow statement FAS No. 95 classication errors Consolidation, Fin46r/Off BS and foreign currency Income statement classication, margin, and EPS Foreign, related party, afliated and/or subsidiary Restatement of previous 404 disclosures Lease, leasehold, and FAS No. 13 98 subcategory Journal entry control issues Nonroutine transaction control issues Intercompany/Investment w/sub/afl issues 9 13 17 18 20 21 22 42 44 68 4 40 57 Frequency EP # 3 3 3 3 3 3 3 3 3 3 2 2 2 ERP 0 2 50 0 1 2 9 4 28 3 28 2 0 129 0 ERP 1 3 30 1 1 3 8 5 19 1 17 4 1 94 1 ERP 0.00 0.27 6.63 0.00 0.13 0.27 1.19 0.53 3.71 0.40 3.71 0.27 0.00 Proportions 0 ERP 1
0.13 0.40 3.98*** 0.13 0.13 0.40 1.06 0.66 2.52* 0.13 2.25** 0.53 0.13
3 5 10 24 36 38 43 73 76 77 8
2 2 2 2 2 2 2 2 2 2 3
4 21 2 4 1 8 14 3 5 9 4
4 12 1 2 0 5 1 3 6 7 0
0.53 2.79 0.27 0.53 0.13 1.06 1.86 0.40 0.66 1.19 0.53
0.53 1.59* 0.13 0.27 0.00 0.66 0.13*** 0.40 0.80 0.93 0.00**
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Panel B: Specic (Account-Level) Factors Untimely or inadequate account reconciliations Capitalization of expenditures issues Accounts/loans receivable, investments, and cash PPE, intangible or xed asset value/diminution Deferred, stock-based, or executive comp issues Depreciation, depletion, or amortization issues Expense recording payroll, SG&A issues Financial derivatives/hedging FAS No. 133 accounting Inventory, vendor, and cost of sales issues Liabilities, payables, reserves, and accrual estimate Acquisition, merger, disposal, or reorganization Revenue recognition issues Tax expense/benet/deferral/other FAS No. 109 Debt, quasi-debt, warrants, and equity BCF security Pension and other post-retirement benet issues Asset retirement obligation issues Total Specic Account-Level Factors Total of All Factors Reported
12 14 15 16 27 28 29 30 32 33 35 39 41 47 80 81
3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
12 1 5 9 7 5 1 2 13 8 6 10 19 1 2 1 177 306
10 0 5 5 3 4 2 0 10 8 4 11 8 1 0 0 112 206
1.59 0.13 0.66 1.19 0.93 0.66 0.13 0.27 1.72 1.06 0.80 1.33 2.52 0.13 0.27 0.13
1.33 0.00 0.66 0.66 0.40 0.53 0.27 0.00* 1.33 1.06 0.53 1.46 1.06** 0.13 0.00* 0.00
*, **, *** Prob
Z at 0.10, 0.05, and 0.01 levels, respectively, such that Proportion ERP AA Ref Audit Analytics Reference Number. EP # Expert Panel members in agreement on classication. ERP 1: ERP Implementing Firms. ERP 0: Control Firms.
ERP
0.
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TABLE 7 Analysis of Factors Contributing to Material Weaknesses

Panel A: Frequency of Firms Reporting General versus Specic Contributing Factors Frequency Proportions ERP General GEN 0 GEN 1 Totals Specic SPE 0 SPE 1 Totals 328 49 377 326 51 377 0 ERP 348 29 377 347 30 377 1 Total 676 78 754 673 81 754 ERP 0 ERP 1 Total 89.7% 10.3% 100.0% 89.3% 10.7% 100.0% Diff Z-stat
87.0% 13.0% 100.0% 86.5% 13.5% 100.0%
92.3% 7.7% 100.0% 92.0% 8.0% 100.0%
5.3%
2.39***
5.5%
2.47***
Panel B: Mean Values of Contributing Factors Reported ALL ERP 0 ERP n GENERAL SPECIFIC Difference t-stat 754 0.383 0.295 0.088 2.782## 377 0.469 0.342 0.127 2.479## 377 0.297 0.249 0.048 1.314
Diff 0.172 0.093
t-stat 1.741 1.343
*, **, *** 0.10, 0.05, and 0.01 levels, respectively, such that Prob Z Proportion ERP 0 ERP 1 0; one-tailed test. , , 0.10, 0.05, and 0.01 levels, respectively, such that Prob t ERP 0 ERP 1 0; one-tailed test. #,##,### 0.10, 0.05, and 0.01 levels, respectively, such that Prob t GENERAL SPECIFC 0; two-tailed test. ERP 1: Firms that implemented ERP systems between 1994 and 2003. ERP 0: Control rms that have not reported implementation of an ERP system. GEN 0: Firms with no Internal Control Weaknesses in the Audit Analytics database. GEN 1: Firms with at least one Internal Control Weakness in the Audit Analytics database and contributing factors that are related to General controls. SPE 0: Firms with no Internal Control Weaknesses in the Audit Analytics database. SPE 1: Firms with at least one Internal Control Weakness in the Audit Analytics database and contributing factors that are related to Specic account-level controls. GENERAL: Number of factors contributing to material weaknesses that relate to general controls. SPECIFIC: Number of factors contributing to material weaknesses that relate to specic account-level controls.
V. CONCLUSIONS Summary of Results This study examines the impact that enterprise resource planning ERP systems have on the effectiveness of internal controls over nancial reporting. It uses a sample of rms that implemented ERP systems from 1994 to 2003 matched with control rms based on industry and size. It compares internal control weaknesses ICW reported in Form 10-K for each of the groups. The results show that during the rst ve years that SOX Section 404 has required such reporting, a smaller proportion of ERP-implementing rms have reported ICW than the control rms. These results hold up in a probit regression analysis that includes several control variables that prior research has found to be associated with ICW. The regression suggests that rms that implemented ERP systems are less likely to have ICW than the non-ERP control rms.
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TABLE 8 Probit Regression Results for General (Entity-Wide) and Specic (Account-Level) Controls
Dependent Variable GENERAL Parameter Intercept ERP FOREIGN M&A RESTR LOSS BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE Log Likelihood Observations Exp. Sign ? ? Estimate 1.7742 0.5452 0.1395 0.6131 0.0757 0.3129 0.2894 0.0338 0.6216 0.0790 0.3228 0.0605 0.1289 0.6391 385.314 754 Std. Error 1.9255 0.2697 0.2674 0.2672 0.2669 0.3157 0.4342 0.2002 0.2914 1.0116 0.0953 0.0264 0.1986 0.7027 Wald
2
Dependent Variable SPECIFIC Estimate 1.5444 0.5628 0.0121 0.5714 0.0937 0.4722 0.1786 0.0322 0.5429 0.0401 0.3058 0.0366 0.0173 0.7483 358.685 754 Std. Error 1.8858 0.2653 0.2566 0.2632 0.2652 0.3136 0.4180 0.1954 0.2870 1.0159 0.0908 0.0243 0.1973 0.6843 Wald
2
0.8500 4.0863** 0.2827 5.2653** 0.0804 0.9825 0.4442 0.0285 4.5494** 0.0061 11.4704*** 5.2565** 0.4211 0.8272
0.6700 4.5007** 0.0022 4.7128** 0.1249 2.2676* 0.1826 0.0272 3.5785** 0.0016 11.3503*** 2.2687* 0.0077 1.1957
*, **, *** Indicate signicance at 0.10, 0.05, and 0.01 levels, respectively, using one-tailed test where sign is predicted, otherwise two-tailed test. Condence limits are based on 95 percent Wald Condence Limits.
Prob DVit = f + +
1ERPit
2FOREIGNit
3 M&Ait
4RESTRit
5LOSSit
6BIG4it
7LOGSEGit 13LOGERPAGEit
8SALEGRWit +
9INVTATit +
10LOGMKTVit +
11ZSCOREit +
12LOGAGEit +
Variable Denitions: DV dependent variable: count of weaknesses related to GENERAL or SPECIFIC controls; ERP indicator variable equal to 1 for rms that have implemented ERP systems, else 0; FOREIGN indicator variable equal to 1 if the rm has a nonzero foreign currency translation Compustat mnemonic FCA , else 0; M&A indicator variable equal to 1 if acquisitions reported on the Statement of Cash Flows Compustat mnemonic AQC , else 0; RESTR indicator variable equal to 1 if at least one of the following is not equal to 0 Compustat mnemonics RCP, RCA, RCEPS, RCD , else 0; LOSS indicator variable equal to 1 if earnings before extraordinary items Compustat mnemonic IB are less than 0, else 0; BIG4 indicator variable equal to 1 if the rms auditor is one of the Big 4 rms, else 0; LOGSEG natural log of number of business segments Compustat mnemonic SEGNUM ; SALEGRW percentage change in sales Compustat mnemonic SALE ; INVTAT ratio of inventory over total assets Compustat mnemonic INVT/AT ; LOGMKTV natural log of market value of equity Compustat mnemonic MKVAL/MKVALM ; ZSCORE Altmans Z-score Computed from Compustat as ZSCORE A 3.3 B 0.99 C 0.6 D 1.2 E 1.4. Where A EBIT/Total Assets; B Net Sales/Total Assets; C Market Value of Equity/Total Liabilities; D Working Capital/Total Assets; E Retained Earnings/Total Assets ; LOGAGE natural log of years the rm exists in the CRSP database; and LOGERPAGE natural log of the number of years since the ERP system was implemented.
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The study also examines factors contributing to ICW by dividing them into those that are related to general entity-wide controls and specic account-level controls. The results indicate that ERP-implementing rms are less likely than the control rms to report factors contributing to ICW in both categories, and these results are also robust when control variables are added in a probit regression. There is not a signicant difference between the factors related to general and specic controls for ERP-implementing rms. However, control rms report signicantly more general factors than specic factors. Limitations and Future Research This study has several limitations. First, the sample suffers from a large-rm bias that results from the phased-in timing of compliance with SOX Section 404. It is possible that results for smaller rms that were not required to comply with SOX initially may be different. Future research should expand this study to include the nonaccelerated lers after sufcient data have accumulated. Second, the selection process, which uses press releases to select ERP implementing and control rms, introduces potential bias. Additional large-rm bias may be introduced in that larger rms may be more inclined to issue press releases than smaller rms. Also, it is possible that some of the control group may have implemented ERP systems, but did not issue any press releases discussing it. In this case the results would be biased against the ERP rms, which would only strengthen the ndings. Another issue relates to how much of the ERP system has been implemented and is being used. Since the press releases tend to only identify that an ERP system is being or has been implemented, there is no way to know how many of the modules have been implemented, how much of the organization has adopted the system, or, for that matter, how many of the built-in internal control features are being used. As with the previous limitation, this would also bias the results against the ERP rms, which would strengthen the ndings. Future research should consider additional ways to identify ERP implementers and the extent to which the systems have been implemented and are being utilized. There is also the problem of human judgment related to the factors that contribute to internal control weaknesses. The rst judgment is made by the staff at Audit Analytics, who determine which factors apply by reading the management and audit reports that are led. The second judgment is in determining which of those factors are related to general entity-wide controls and which are related to specic account-level controls. The rst one is not critical to this study because it is not focused on identifying specic factors, only on the impact of ERP on ICW. The second one is addressed by using a diversied expert panel to spread the judgment to multiple parties from different perspectives, including national and regional CPA rms and internal corporate accounting. Implications and Contribution This studys nding that rms which implement ERP systems report fewer material ICW than rms that do not use ERP systems is important for a number of reasons. First, it provides support for the claim that ERP systems help improve internal controls over nancial reporting as required by Sarbanes-Oxley Section 404. To my knowledge, this is the rst empirical/archival test of these claims and should be of interest to many constituencies, including those responsible for purchasing such systems, auditors, software vendors, and the academic community. Second, the results provide additional data that may contribute to a better understanding of the conicting results in prior ERP research related to earnings management. For instance, Brazel and Dang 2008 nd an increase in earnings management activity following implementation of ERP systems from 19931999. Dorantes et al. 2009 argue that earnings management, in general, increased during this period of time until the passage of SOX in 2002, and that Brazel and Dangs
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2008 research design does not take this general trend into consideration because the sample is not compared to a control group, only to itself before and after implementation. In their study, Dorantes et al. 2009 nd a decrease in earnings management, relative to a control group, which is similar to the ndings by Morris 2009 for discretionary working capital accruals. These conicting results could be explained in part by the enactment of SOX and the increased emphasis on internal controls. It is conceivable that as rms work to comply with SOX, they implement more of the built-in features of ERP systems, placing more emphasis on internal control, which then leads to a decrease in earnings management activity at least relative to non-ERP rms . This explanation is consistent with ndings in the current study as presented in Table 4, which shows no signicant difference between ERP and non-ERP rms in the rst two years of SOX reporting, marginally signicant differences in the third year, and signicant differences in the fourth and fth years. However, it is not consistent with the fact that the coefcients on the LOGERPAGE variables in the probit regression analyses Tables 5 and 8 were not signicant. It is possible that the nonsignicance is due to low power that results from a relatively small sample size. Future research should examine this issue after more data become available, which will increase the power of the tests. Third, the ndings that both general entity-wide and specic account-level controls are less likely to contribute to ICW for ERP rms than for control rms is consistent with the overall ndings. Also consistent with the overall ndings is the fact that ERP rms report no signicant differences between the two categories while non-ERP rms report more general entity-wide control factors than specic account-level control factors see Table 7 . This information, along with the prior ndings of Dorantes et al. 2009 and Morris 2009 , suggests that Brazel and Dang 2008 may be an anomaly. Additional research is needed to further examine the inconsistencies in the relationship between ERP systems, earnings management, and internal control. The use of additional methodologies such as eld studies and/or survey data may be needed to better understand the details of how ERP systems are implemented and used, which may then help to better explain some of these differences.
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APPENDIX ABRIDGED EXAMPLE OF AN AUDIT REPORT PRIDE INTERNATIONAL, INC. Report of Independent Registered Public Accounting Firm16
To the Stockholders and Board of Directors of Pride International, Inc.: We have completed an integrated audit of Pride International, Inc.'s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Pride International, Inc. and its subsidiaries Internal control over financial reporting Also, we have audited management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that Pride International, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004 because the Company did not maintain effective controls based on criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management's assessment. As of December 31, 2004, the Company did not maintain effective controls over the communication among operating, functional and accounting departments of financial and other business information that is important to the period-end financial reporting process, including the specifics of non-routine and non-systematic transactions. Contributing factors included the large number of manual processes utilized during the period-end financial reporting process and an insufficient number of accounting and finance personnel to, in a timely manner: (1) implement extensive structural and procedural system and process initiatives during 2004, (2) perform the necessary manual processes, and (3) analyze non-routine and non-systematic transactions. This control deficiency resulted in errors that required the restatement of the Company's consolidated financial statements for 2003 and 2002, the first three quarterly periods in 2004 and all quarterly periods in 2003, as discussed in Note 2 to the consolidated financial statements. The errors primarily affected property and equipment and the related depreciation expense, debt and the related interest and financing costs, minority interest balances and activity and income tax balance sheet accounts and the related provisions. This deficiency also resulted in audit adjustments to the 2004 consolidated financial statements primarily affecting accrued employee benefits and interest and the corresponding expense accounts. Additionally, this control deficiency could result in a material misstatement to the Company's annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and our opinion regarding the effectiveness of the Company's internal control over financial reporting
16
Source of Audit Report is from Form 10-K Filing in EDGAR
Spring 2011

does not affect our opinion on those consolidated financial statements. In our opinion, management's assessment that Pride International, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control -- Integrated Framework issued by the COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Pride International, Inc. has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control -- Integrated Framework issued by the COSO. PricewaterhouseCoopers LLP Houston, Texas March 25, 2005
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The Audit Analytics Database lists the following contributing factors based on the above opinion. The section of the audit report that discusses the internal control weaknesses is underlined. Internal Control Weaknesses (4): Accounting documentation, policy and/or procedures Non-routine transaction control issues Restatement or nonreliance of company filings Restatement of previous 404 disclosures Accounting Rules (GAAP/FASB) Application Failures (7): Accounts/loans receivable, investments & cash issues Consolidation, (Fin46r/Off BS) & foreign currency translation issues Debt, quasi-debt, warrants & equity (BCF) security issues Depreciation, depletion or amortization issues Liabilities, payables, reserves and accrual estimate failures PPE, intangible or fixed asset (value/diminution) issues Tax expense/benefit/deferral/other (FAS 109) issues
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Brunelli, M.. 2006. Smaller Vendors Challenge SAP, Oracle in ERP Market. Available at: http:// searchoracle.techtarget.com/originalContent/0,289142,sid41_gci1229162,00.html. Chan, K. C., B. R. Farrell, and P. Lee. 2008. Earnings management of rms reporting material internal control weaknesses under Section 404 of the Sarbanes-Oxley Act. Auditing: A Journal of Practice & Theory 27 2 : 161179. Cheffers, M., D. Whalen, and M. Thrun. 2008. 404 Dashboard: Year 4 Update: Audit Analytics Database Report. Committee of Sponsoring Organizations COSO . 1985. Organization background information. Available at: http://www.coso.org/. . 1992. Internal ControlIntegrated Framework: Executive Summary. The Committee of Sponsoring Organizations of the Treadway Commission 1992. Available at: http://www.coso.org/icintegratedframework-summary.htm. Davenport, T. H. 1998. Putting the Enterprise into the Enterprise System. Boston, MA: Harvard Business Review. Deumes, R., and W. R. Knechel. 2008. Economic incentives for voluntary reporting on internal risk management and control systems. Auditing: A Journal of Practice & Theory 27 1 : 3566. Dorantes, C. A., C. Li, G. F. Peters, and V. J. Richardson. 2009. The effect of enterprise systems implementations on the rm information environment. Available at: http://papers.ssrn.com/sol3/ papers.cfm?abstract_id 1526521. Doyle, J. T., W. Ge, and S. McVay. 2007. Determinants of weaknesses in internal control over nancial reporting. Journal of Accounting and Economics 44 12 : 193223. Eisenhardt, K. M. 1989. Agency theory: An assessment and review. Academy of Management Review 14 1 : 5774. Eschinger, C. 2006. Market share: ERP software, worldwide, 2005 executive summary . In ID Number: G00141080, edited by Gartner. Stamford, CT: Gartner, Inc. Ettredge, M. L., L. Sun, and C. Li. 2006. The impact of SOX Section 404 internal control quality assessment on audit delay in the SOX era. Auditing: A Journal of Practice & Theory 25 2 : 123. Ge, W., and S. McVay. 2005. The disclosure of material weaknesses in internal control after the SarbanesOxley Act. Accounting Horizons 19 3 : 137158. Grant, G. H., K. C. Miller, and F. Alali. 2008. The effect of IT controls on nancial reporting. Managerial Auditing Journal 23 8 : 803823. Gupta, P., and J. C. Thomson. 2006. Use of COSO 1992 in management reporting on internal control. Strategic Finance September : 2733. Hayes, D. C., J. E. Hunton, and J. L. Reck. 2001. Market reaction to ERP implementation announcements. Journal of Information Systems 15 1 : 318. Hunton, J. E., A. M. Wright, and S. Wright. 2004. Are nancial auditors overcondent in their ability to assess risks associated with enterprise resource planning systems? Journal of Information Systems 18 2 : 728. Janvrin, J. D., J. Bierstaker, and D. J. Lowe. 2004. The impact of client information technology on audit procedures. Working paper, Iowa State University. Jensen, K. L., and J. L. Payne. 2003. Management trade-offs of internal control and external auditor expertise. Auditing: A Journal of Practice & Theory 22 2 : 99119. Krishnan, J. 2005. Audit committee quality and internal control: An empirical analysis. The Accounting Review 80 2 : 649675. Morris, J. J. 2009. Measuring the impact of enterprise resource planning ERP systems through the prism of accounting theory. Dissertation, Kent State University. Nicolaou, A. I. 2004. Firm performance effects in relation to the implementation and use of enterprise resource planning systems. Journal of Information Systems 18 2 : 79105. Ogneva, M., K. R. Subramanyam, and K. Raghunandan. 2007. Internal control weakness and cost of equity: Evidence from SOX Section 404 disclosures. The Accounting Review 82 5 : 12551297. Oracle. 2005. Information Generates Value: The Cornerstone for Sustainable Compliance and Growth 2005. Available at: http://www.oracle.com/applications/nancials/nance.pdf.
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JOURNAL OF INFORMATION SYSTEMS Vol. 25, No. 1 Spring 2011 pp.

American Accounting Association DOI: 10.2308/jis.2011.25.1.129

Published Online: March 2011

Journal of Information Systems American Accounting Association

The Impact of Enterprise Resource Planning (ERP) Systems

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Spring 2011 American Accounting Association

Journal of Information Systems American Accounting Association

The Impact of Enterprise Resource Planning (ERP) Systems

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Spring 2011 American Accounting Association

Journal of Information Systems American Accounting Association

The Impact of Enterprise Resource Planning (ERP) Systems

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TABLE 1 Summary of Sample Selection Process

(continued on next page)

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BIG4 LOGSEG SALEGRW INVTAT LOGMKTV ZSCORE LOGAGE LOGERPAGE

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TABLE 2 Firm Characteristics (Univariate Statistics)

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The Impact of Enterprise Resource Planning (ERP) Systems

(continued on next page) 141

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TABLE 4 Frequency of Internal Control Weaknesses

86.5% 13.5% 100.0%

92.0% 8.0% 100.0%

76.1% 23.9% 100.0%

83.1% 16.9% 100.0%

79.6% 20.4% 100.0%

86.7% 13.3% 100.0%

88.9% 11.1% 100.0%

87.8% 12.2% 100.0%

88.4% 11.6% 100.0%

94.2% 5.8% 100.0%

91.3% 8.7% 100.0%

89.8% 10.2% 100.0%

96.6% 3.4% 100.0%

93.2% 6.8% 100.0%

92.9% 7.1% 100.0%

100.0% 0.0% 100.0%

96.4% 3.6% 100.0%

*, **, *** Prob

Journal of Information Systems American Accounting Association

The Impact of Enterprise Resource Planning (ERP) Systems

TABLE 5 Probit Regression Results

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Spring 2011 American Accounting Association

Journal of Information Systems American Accounting Association

The Impact of Enterprise Resource Planning (ERP) Systems

Journal of Information Systems

Spring 2011 American Accounting Association

Journal of Information Systems American Accounting Association Spring 2011

TABLE 6 Factors Contributing to Internal Control Weaknesses

, , Prob

, , Prob