This study attempts to provide a comprehensive understanding of the interrelationships among chief financial officers’ (CFOs’) professional qualifications, SOX Section 404 internal control weakness, CFOs’ turnover, CFOs’ qualification improvement, and correction of material weaknesses. We find that firms receiving initial adverse SOX 404 opinions for 2004 have less qualified CFOs. Adverse SOX 404 opinion recipients experience more CFO turnover in 2005, and these firms are more likely to hire CFOs having improved qualifications. Results show that simply hiring a new CFO is not associated with SOX 404 opinion improvement. Opinion improvement requires hiring a better qualified CFO.

This study investigates whether auditors incorporate investor information demand when determining key audit matter (KAM) disclosures. We measure investor information demand using a unique dataset of investor inquiries submitted through investor interactive platforms (IIPs) established by the China Securities Regulatory Commission. At the topic level, we find that auditors are more likely to disclose a given topic as a KAM when investors raise more inquiries on that topic. At the aggregate level, a higher proportion of inquiries devoted to accounting issues is associated with both a greater number of KAMs and longer KAM disclosures. Importantly, following the introduction of KAM reporting, managers’ footnote disclosures become more aligned with heightened investor inquiries, reinforcing our interpretation that the documented effects reflect auditors’ responses to investor inquiries rather than merely mirroring managerial disclosure changes. Overall, our findings suggest that auditors incorporate investor information demand into KAM disclosures.

After restating their financial statements, companies may voluntarily restate their previously issued internal control (IC) reports for the financial statement (FS) misstatement periods, changing them from “effective” to “ineffective.” This paper examines the determinants and consequences of IC restatements, which have been of concern to financial statement users. When announcing these IC restatements, companies often provide a detailed explanation of the IC problems and a discussion of their plans to remediate these problems. We find that companies with less severe IC problems that can be remediated more quickly are more likely to restate their IC reports. Moreover, these results are driven by companies with a higher need for external financing, suggesting that IC restaters voluntarily restate their IC reports in order to inform investors about their less severe IC material weaknesses and their plans to improve IC quality. Finally, we find that, relative to other FS restatement companies, IC restaters have a lower likelihood of CFO turnover and auditor resignation following the FS restatement. Taken together, our results suggest that voluntary IC restatements are used by IC restaters as a means to separate themselves from other FS restatement companies with more severe control problems and slower remediation plans. Our findings also indicate that studies investigating IC quality and related disclosures need to distinguish between IC restaters and other FS restatement companies because of the different characteristics and consequences between the two groups.