Effect of Internal Accounting Control System Audit on Accounting Quality under COVID-19

In this study, we examined the impact of COVID-19 on accounting quality and whether the strengthening of certification from review of internal accounting control system (IACS) to audit has a positive impact on accounting quality in the face of such drastic changes in the external environment. Our empirical study demonstrates that despite overall decline in accounting quality after COVID-19, companies subject to IACS audit do not show decrease in accounting quality. Also, a significant decrease in accounting quality was found for companies without IACS audit when conducting overseas business, but no significant decrease in accounting quality was found for companies with IACS audit regardless of whether they conducted overseas business. Similarly, a significant decrease in accounting quality was found for companies without IACS audit when the proportion of inventories was high, but no significant decrease in accounting quality was found for companies with IACS audit regardless of the proportion of inventories. This result suggests that IACS audits positively contribute to maintaining accounting quality amid rapid external changes, such as COVID-19. It emphasizes the importance of sustaining this system to uphold accounting reliability, especially in the current context where regulatory authorities and companies are debating its effectiveness.