الفهرس 
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Abstract
1- Introduction and Research Problem:
Firms generally set up internal control structures to identify and manage risks.
Establishing a high-quality internal control structure has become a crucial issue in
the corporate governance because of the large number of fraud cases in recent
years. This had resulted in significant efforts to strengthen risk management
systems in firms, as well as changes in the Securities Exchange Commission
(SEC) and stock exchange regulations. Following the improved regulations, all
firms must have high quality internal control structures capable of providing an
assurance that risks are managed in an effective manner.
High internal control quality is viewed as an important tool to ensure the existence
of high-quality financial reporting, as previous studies showed that weak internal
controls can increase the probability of material misstatements and inaccurate
financial disclosures. Weak internal controls also increase the likelihood that the
firm will re-estimate its earnings as it creates more opportunities to manage both
intentional and unintentional errors in accounting estimates. Accordingly, it is
indicated that it is necessary to determine the level of internal control quality
within firms and develop a plan to overcome any weakness if exists, so the
following questions arise:
- What is the impact of internal control quality on the quality of earnings?
- How does the quality of internal controls in firms affect the quality
of their financial reporting?
- How does the quality of internal controls in firms affect risk assessment
through detecting errors and fraud?
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These questions form the study problem which is to study the level of the firm’s
internal control quality, and how the quality of internal control can affect the
quality of earnings and the probability of discovering fraud perpetration which
will be reflected in the financial reporting quality.
2- Study Objectives:
This study aims to:
- Determine the role of internal controls in the adoption of many accounting
procedures and policies.
- Determine the extent to which internal control quality can affect the quality
of financial reporting of firms.
- Direct firms’ attention to the importance of high-quality internal controls
and its impact on reducing earnings management practices and financial
reporting manipulation.
3- Study Importance:
This study will help firms’ management and auditors to identify the importance
of reporting on the quality of internal controls and to identify the direct impact
of internal controls quality on earnings quality, which in turn affects investment
decisions.
4- Study Methodology:
The researcher relies partially on the inductive approach through reviewing
previous studies related to internal control quality in firms and its impact on
the reliability of financial reporting represented in many forms such as earnings
quality, firm value, and stock market, as well as this study relies, in another
aspect, on the deductive approach through testing the study hypotheses using
an empirical study which is divided into two studies: a field study through
surveying audit firms and auditors working at Accountability State Authority
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in Egypt, and an applied study to test the main study hypotheses within the
Egyptian business and professional practice, so the correlations between
variables are examined and regression models are estimated, also some
statistical models will be used to interpret the results in order to reach the study
goal.
5- Study Hypotheses:
To achieve the aim of the study, the researcher formulated the following
hypotheses in order to test and verify their validity:
The first hypothesis: There is no statistically significant effect of internal
control quality on the probability of discovering fraud perpetration.
The second hypothesis: There is no statistically significant effect of internal
control quality on earnings quality.
The third hypothesis: There is no statistically significant effect of internal
control quality on financial reporting quality.
6- Study Limitation
According to the field study, it is limited to the external auditors in the audit
firms and the Accountability State Authority in Egypt, as the internal auditors
within firms are not included in the study sample in order to find out the neutral
opinion on the effectiveness and quality of internal control structures and the
extent of their impact on the quality of financial reporting and the quality of
reported earnings in firms.
For applied study, it is limited to some factors:
-Geographic Limitation: The application study is limited to the Egyptian
firms whose shares are traded in the Egyptian Stock Exchange.
-Sectoral Limitation: This study excludes the banks and financial services
sectors because of their special nature of financial reporting, due to the different
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nature and application of their business for their own standards, rules,
frameworks, and internal control structures
-Time Limitation: The study is limited to the analysis of the annual financial
reporting for those firms whose shares are traded in the Egyptian Stock
Exchange within the period from 2017 to 2021.
7- Study Results:
The study revealed that:
- Internal control quality has a significant strong effect on discovering fraud
perpetration, this is according to the role of internal control quality in
preventing and detecting errors and misrepresentations in the financial
statements, determining appropriate controls to reduce frauds and
manipulation, and identify incentives and justifications for committing frauds
in order to prevent it.
- Internal control quality has a significant strong effect on earnings quality, this
is due to the role of internal control quality in detecting earnings management
practices, and monitoring management behavior to find out the motives for
committing earnings management practices.
- Internal control quality has a significant strong effect on the quality of financial
reporting as the presence of high internal control quality in the firm leads to
preparing financial reports with a high degree of credibility and transparency
and make them available to internal and external users easily and in a timely
manner
- Audit Committee strongly moderating the relationships between internal
control quality and earnings quality, financial reporting quality, and
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discovering fraud perpetration. This is due to its active role in discussing issues
related to the financial reporting process and management performance.
8- Recommendations:
- The researcher recommends the review of the legislation, standards and
regulations that govern the disclosure of internal control quality within firms.
- The researcher recommends the need to disclose the quality of internal control
structures in independent reports by firms listed on the Egyptian Stock
Exchange because of its strong impact on investment decisions and the
investors’ trustiness in the financial reporting of firms.
- The researcher recommends the regulatory and professional bodies to
cooperate with firms in order to ensure the quality and effectiveness of their
internal control structures, and to spread the culture of the quality of the internal
control structures in the firms and that it is the task of all employees within
firms, because of their crucial impact on the honesty and fairness of financial
reports.
- The researcher recommends that regulatory and professional bodies take more
attention and control over other methods of fraud perpetration within firms.
- The researcher recommends the necessity of activating the role of audit
committees in all firms and ensuring the extent of their independence because
of their effective role in identifying the practices of earnings management and
financial reporting manipulation in firms.