Managerial Ability and Internal Control Quality

Internal control quality of a firm can be affected by its specific features, auditing quality and corporate surveillance. Establishing an appropriate internal control system in firms will enhance accountability and financial transparency. This study is aimed to investigate the effect of managerial Ability on internal control quality. Thus, the study applies management compensation and managerial efficiency as indexes of managerial ability, and uses internal control system weaknesses in auditing report as an index of the internal control quality. This is an applied research with and causal method. The sample consists of 87 firms listed in Tehran Stock Exchange during the period from 2007 to 2016. To test the hypothesis the Logit regression method has been used considering the nature of the dependent variable. Results indicate that there is no significant relation between management compensation and internal control quality. Also, a negative relation between the managerial efficiency and the internal control system weaknesses indicates that managerial ability can improve the internal control system.