Discussion of “Do MWs in IT Related Internal Controls Affect 8-K Filing Timeliness and Compliance” Kevin Kobelsky, University of Michigan – Dearborn

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky Topic Impact of IT controls on regulated financial reporting Important – if not, then what is? Interesting to AIS audience

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky Previous Research 8K SOX → More timely 8K reporting (Karim and Pinsker, 2011) MWs in IC (within SOX era) MWs → Delays in YE reporting (Ettredge et al, 2006) Not referenced MWs → Delays in 10K reporting (Impink et al, 2012) ITMWs → Increases in Future MWs ≈ nonIT MWs (Klamm et al, 2012) ITMWs → Decreased Mgmt Forecast Quality (Li et al, 2012) Why? ITMW? ITMW on Filings?

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky Contribution Given prior findings, i.e., MWs in aggregate → Less timely reporting Is this (i.e., ITMW with 8K) enough? YES 8K confirmatory evidence (H1) has value, esp. post-Hunton A deep dive on ITMW’s effect on timeliness of regulatory filings (H2) Key

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky Argumentation in 8K context Two complementary arguments: 1.Governance-based – Strong Corporate gov’ce → compliance. MW proxy for corporate gov’ce (H1) But, MW are an outcome of governance (Krishnan, 2005), not an indicator of it. Why not use Corp Social Resp’y, Equity price? Ignores how effective ICFR facilitates 8K reporting 2.Technology-based – Well-operated IT systems enhance execution, enable timely reporting (H2) But, how do IT systems/controls help reporting of: New Agreements (29K) Officer, Director Changes (33K) FD Disclosure (29K) Issue Obligations - Debt, Equity (6)? Examples would be helpful.

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky H1 Measure – ICMW Scale H1a/b Independent Variable ICMW coding: Text p.13,25 0-No, +1-Yes, Table 1 Panel A - observation excluded if ICMW not reported, but, App. A -1-No, 0-not reported, +1-Yes Table 2 median = -1, mean= ,0,+1 scale forces linearity, i.e., (No - Not Reported) = - (Yes-Not Reported) Increases variance, Reduces significance - ns Surprising Events in Table 4 col (3)? For ‘Not Reported’ observations: drop, report ‘n’ Report Min, Max values in Table 2

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky H2 Measure – ITMW Scale H2a/b Independent Variable ITMW coding: Text p.15, App. A 0-No, +1-Yes, Table 1 Panel A - observation excluded if ICMW not reported, but, Table 2 median = -1, mean= ,0,+1 scale forces linearity, i.e., (No - Not Reported) = - (Yes-Not Reported) Increases variance, Reduces significance - ns models in Tables 5, 6? For ‘Not Reported’ observations: drop, report ‘n’ Report Min, Max values in Table 2

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky H2 Measures and Design What is research objective in H2a/b? ITMW existence effect ≠ nonIT MW existence effect? - If so, compare coefficient Issue: due to -1,0,+1 ITMW coding (vs 0,+1 for Other_MWs), true ITMW effect is 2x that shown. Per Table 5 col (2) for Complicated Events: ITMW x 2 = 0.84 vs Other_MW 0.82, so Equal effects (as in Klamm et al, 2012) for Complicated Events (though not formally tested) No ITMW effect for Non-complicated Events, BUT…

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky H2 Measures and Design Firms reporting ITMWs also report Other_MWs – Klamm et al (2012) dataset of SOX reports Implication: ITMW effect is ADDS TO Other_MW effect. Tables 6,7 could reflect addition of MWs, i.e., More MWs (IT or nonIT) → More Delay Design reflects number of MWs, not just type What if NO difference in IT, nonIT effects? More convincing: have measures of extent and type - MW Count, with dummy for ITMW Different results?

UWCISA 9 th Symposium Oct. 9, 2015 Kevin Kobelsky Summary Impact of IT controls on financial reporting Right topic H1 – MWs contribute to likelihood of 8K -Suggest minor enhancement to analysis H2 – Are ITMWs different? (Key contr’n) -Can’t tell with present analysis -Need to distinguish extent from type