seyyedmorteza mortazavi

A system of effective internal controls is a foundation for the safe and sound operation of banks and helps management to safeguard bank's resources and interests. Since improving performance of internal control system requires recognizing its current status, in this study, an attempt has been made to evaluate the current status of establishment of internal control system in Iranian banks. For this purpose, through the designed questionnaire, experts have been asked to evaluate the current status of effective indicators in establishing internal control system of banks, taking into account the importance of these indicators. Received answers were analyzed using fuzzy delphi method, fuzzy gap analysis, importance-performance analysis and paired sample test. According to experts, the current status of all effective indicators in the establishment of the internal control system of banks was assessed as unfavorable. Findings from fuzzy gap analysis also indicate that except for 3 indicators, there is a significant gap between the current status (what is) and the desired status (what should be) of indicators. Also, according to the findings of importance-performance analysis, out of 119 indicators studied, 113 indicators do not have acceptable performance despite their high importance. In addition, based on the results of the paired sample test, it can be concluded that there is a significant gap between current status and desired status of effective indicators in establishing the five dimensions of the internal control system of banks: control environment, risk assessment, control activities, information and communication and monitoring activities.

The system of internal controls is the main foundation of banks' governance system and is established to guide and supervise banking activities in order to achieve their goals and transparency and accountability. Despite the importance and necessity of the effective functioning of the internal control system in banks, no research has been conducted to identify its weaknesses in Iran. Accordingly, considering the consequences that the weaknesses of the internal control system can have for the banking system, this study, aims to identify the weaknesses of the internal control system of Iranian banks. In order to achieve the objectives of the study, first, the operational audit reports of banks were reviewed. Experts were then interviewed to identify other weaknesses in the banks' internal control system. Finally, the experts' opinions about the weaknesses were collected through a questionnaire and their consensus on each of the weaknesses was examined using the fuzzy Delphi method. Confirmatory factor analysis was used to evaluate the accuracy of clustering in this study. Based on the results of reviewing banks' operational audit reports and interviewing experts, a total of 64 weaknesses were identified. The findings indicate that 60 of the identified weaknesses gained a general consensus in favor of the Delphi group, and by factor analysis, the accuracy of the clustering of items was confirmed. The findings of this study can help to identify the current situation and plan to address the weaknesses of the internal control system of Iranian banks.

One of the possible reasons for the weakness of the internal control system of banks can be considered as the lack of a pattern for the establishment of this system. The purpose of this study is to identify the effective indicators in establishing the internal control system of banks and to introduce the effective indicators according to the contextual characteristics of Iranian banks.

In order to achieve the objectives of the research, first, by reviewing the literature, effective indicators in establishing the system of internal controls in banks were identified. In the next stage, semi-structured interviews were conducted with experts in order to consider other factors affecting the research subject according to their experiences and unique context of the Iranian banks. Then, using a questionnaire and fuzzy delphi method, these factors were screened by experts’ opinions. Finally, confirmatory factor analysis test was used to determine the factor loading of the indicators.

The research findings indicate that out of 119 indicators identified as effective indicators in establishing the internal control system of Iranian banks, 113 indicators has obtained the general consensus of the delphi group and by conducting factor analysis, it was determined that all these 113 indicators were of sufficient importance.

Banks will be able to assess the current status of the internal control system by the indicators introduced in this study and ensure the effective functioning of the internal control system.

 Findings of this study can help to identify the indicators affecting the establishment of the internal control system of Iranian banks according to the contextual characteristics of the country and identify the necessary steps to improve the effectiveness of the internal control system in banks.

This paper takes fundamental analysis research beyond the spatial and temporal bounds of previous studies. It was investigated that how detailed financial statement data enter the decisions of market makers by examining how current changes in the fundamental signals chosen can provide information on subsequent earnings changes. Using Tehran Stock Exchange’s firms data from 2003 to 2012, the role of fundamental signals for prediction of future earnings changes was tested. In addition, the influence of contextual factors including prior earnings news and macroeconomic variables (GDP growth and inflation) on the relationship between fundamental signals and future earnings changes was investigated. Results indicate that the fundamental signals are significant predictors of short-term but not long-term future earnings changes. Moreover, prior earnings news doesn’t affect earnings predictability, but this predictability is significantly higher in lower GDP and higher inflation periods. In addition to corroborating prior research with fundamental analysis, this research adds to what has previously been conducted and extends investigations with examination of the predictive link between the fundamental signals and future earnings change by introducing prior earnings news and macroeconomic conditions as contextual factors in order to look for a possible effect which has not been investigated in prior research.

Recent research on cost behavior has revealed that the magnitude of decrease in costs associated with decrease in sales is lower than the magnitude of the increase in costs associated with an equivalent increase in sales. This asymmetric cost behavior is termed as “cost stickiness.” One of the hypotheses on costs stickiness explains it as a result of the deliberate decisions of managers. In this paper, sales forecasts issued by managers are used as a proxy for managers’ prospect of future sales and the deliberate decision hypothesis was examined empirically among 186 firms during 1380 to 1388. Findings show that the prospect of increase in future sales decreases cost stickiness in the case of cost of goods sold and this stickiness is also decreased more when managers are more optimistic about future sales. It was also found that stickiness of sales, general and administrative costs is increased when managers are optimistic about future sales and this stickiness is more when managers are more optimistic.