The passage of Sarbanes-Oxley Act of 2002 introduced Internal Control over Financial Reporting and Disclosure Control and Procedures in the United States. Korea, while adopting Internal control over financial reporting, did not adopt Disclosure Control and Procedures. In an attempt to improve accounting practice/disclosure quality, Korea introduced unfaithful disclosure system and required firms to disclose the number of internal specialists
In order to investigate if the internal specialists do in fact improve accounting practice/disclosure quality, I empirically examine the association between internal specialists and unfaithful disclosure in which I expect a negative sign. I also examine the association between internal specialists and corrections on annual report in which I expect a positive sign.
Because the expression internal specialist of accounting practice and disclosure covers broad categories, I divide internal specialists into two categories: regular disclosure manpower and CPA. Consistent with my expectation, I find a negative association between regular disclosure manpower and unfaithful disclosure. Also consistent with my expectation, I find a positive association between corrections on annual report regular disclosure manpower. These empirical results suggest that internal specialists improve accounting practice/disclosure quality by constraining managers from performing both intentional and unintentioanl misconduct in accounting or disclosure practices and improve disclosure quality by making corrections on annual report when there are mionr errors or updates in information. However, contrary to my expectation, I do not find any association between CPA and unfaithful disclosure and also between CPA and corrections on annual report. Although I have empirically investigated that regular disclosure manpower improve accounting and disclosure quality, I could not retrieve any meaningful result with CPA because of limited sample size.