The Impact of Information Technology Material Weaknesses on Corporate Governance: Evidence from Executive and Director Turnover, and IT Governance Changes Discussant comments Baskaran Rajamani Friday, Oct 21, 2011

Table of contents 1.Author’s Motivation or Justification 2.Theoretical Support 3.Analysis of results 4.Conclusion 5.Contribution to practice 6.Exposition 7.Contact 1

The Impact of IT Material Weaknesses on Corporate Governance Author’s Motivation or Justification Root reason: “Little is known about the consequences of IT deficiencies on changes in corporate governance.” Key conclusions: IT material weakness firms: –experience higher CEO, CFO and director turnover rates. –are more likely to replace executives with professionals possessing higher degrees of IT knowledge –are more likely to upgrade their financial reporting IT; and –remediate internal control weaknesses in a more timely fashion. “firms do recognize the important role that IT plays” Concluding recommendation: “We urge officers and directors of the firm to understand the importance of IT in the financial reporting process and suggest they maintain strong oversight not just in responding to IT failure, but also in preventing IT failure in financial reporting systems to occur.” 2

The Impact of IT Material Weaknesses on Corporate Governance Author’s Motivation or Justification Overall this is a good paper and I should say, having worked in significant projects in Canada related to SOX and IT controls and in general in the IT Governance space, I found the paper very interesting to read. It was an easy read and well referenced. However I have a number of observations and other questions that came to mind – purely in my role as a practitioner – that I want to share with you all. I have spent much less time reading and assimilating it than the authors. As well, I have not had the chance to speak to the authors in advance and get clarifications. So, please bear with me if I come across as having mis- interpreted or missed to see something. 3

The Impact of IT Material Weaknesses on Corporate Governance Author’s Motivation or Justification The paper does not seem to get into discussing why this topic is important or business value of the research work today. For instance it does not quantify the value of being proactive in addressing IT weaknesses, as one example. The work relates to samples from 2004 to 2006 and now we are in 2011 with significant changes and developments that have occurred since.… 4

The Impact of IT Material Weaknesses on Corporate Governance Theoretical support & Research methods Good sample size. The authors have used actual companies and their SOX filings Used firms in multiple industries (= firm-year – term not defined) Creative in assigning attribute values to a wide variety of variables Very extensive in terms of variables considered What is the number of firms included? Paper does not define “IT controls” – has to recognize that IT controls could be automated, manual or hybrid (IT dependent controls) – this could be important since the distinction between IT and non-IT material weaknesses may not be cut and dry As well, no specific mention about entity level controls that impact both IT and non-IT seem to have been made reference to or considered. 5

The Impact of IT Material Weaknesses on Corporate Governance Analysis of results Creative in assigning attribute values to a wide variety of variables Very extensive in terms of variables considered Tends to apply attribute value to all variable (e.g. IT knowledge) – may involve professional judgment. The work does not use interviews and other methods as well as professional judgment to further validate the findings. 6

The Impact of IT Material Weaknesses on Corporate Governance Conclusion Strikes a correlation simply based on a few data points in many cases with less consideration to multiple variables and their aggregated impact: IT Material weaknesses and CEO/CFO turn over. Not sure if other things that may have influenced the turnover are considered. 7

The Impact of IT Material Weaknesses on Corporate Governance Contribution to practice Using relationship between IT material weaknesses and business performance or enhancement or share-holder value would be more valuable to practitioners. If the work was done recently, more recent data could have been used (say ) 8

The Impact of IT Material Weaknesses on Corporate Governance Exposition Overall, the quality of the exposition if good. Is it readily understandable by the audience for which it is designed; i.e., IS Assurance academics, practitioners and students. Apart from my minor observations, I congratulate the authors for a paper well written and supported. 9

The Impact of IT Material Weaknesses on Corporate Governance THANK YOU ALL ! Contact Baskaran Rajamani (416) These views and opinions expressed herein are those of the discussant and do not necessarily represent the views and opinions of Deloitte & Touche LLP. 10