Does the existence of an Enterprise Risk Management (ERM) program influence the existence of material weaknesses in internal control over financial reporting

This research study explores the possibility that a relationship exists between Enterprise Risk Management (ERM) and Internal Control over Financial Reporting. Specifically, this study explores whether the existence of an ERM program reduces the risk of Material Weaknesses in Internal Control over Financial Reporting. Using data from 2011, this study evaluates the effect of ERM implementation on Material Weakness resulting from Management’s Assessment of Internal Control over Financial Reporting pursuant to SOX for a sample of 86 SEC registrants (i.e. public firms). This study finds that public companies with ERM programs report less Material Weaknesses in Internal Controls over Financial Reporting than public companies without ERM programs. The strength of this finding is, however, not statistically significant. This study also finds control variable Sales Growth and control variable Profitability (ROA) are positively associated with the existence of Material Weakness in Internal Control over Financial Reporting (ICFR), and control variable Firm Size (EQUITY) is negatively associated with the existence of Material Weakness in ICFR. The strength of the relationship between Material Weakness in Internal Control over Financial Reporting and these control variables is also not significant, due to certain limitations discussed in the end.