Week6_Li et al. (2012)_Yaeeun Kim

The greatest implication of this paper is oriented from testing the link between system quality and information quality, via actual decision making outcomes. They assess the forecast accuracy when IT material weaknesses are present. In short, firms with IT material weakness are associated with less accurate management forecasts. Improvements in IT control quality are associated with decrease in forecast error. Among the types of IT control problems, systems with IT control problems related to data processing issues are associated with low quality of decision outcome.

This empirical study, which used SOX 404 control reports, contributes to explaining the implications of IT controls on information quality issues for system users and decision makers. Just as manufacturing process focuses on managing the quality of input for enhancing the outcome, information systems focus on managing high quality of information for a better decision making.

The authors also examined the impact of the different dimensions of IT material weaknesses. From the findings, the authors showed that firms with IT material weakness have significantly larger management forecast errors, and the errors are larger than those of firms with non-IT material weaknesses, as problems in information systems could directly impact the FRS output data that management uses to form their forecasts.

Although IT controls are often correlated with the extent of overall control weakness, this study try to answer the remaining unclear points that which type of material weakness yields a greater impact on the quality of information produced by an information system. The control weakness is solely based on the firm’s SOX 404 reports. There are some limitations of this paper: Can the types of control weakness all be answered within this archival report? Also, it is hard to say that the severity of weakness is controlled across the firms.