IT does matter: The folly of ignoring IT material weaknesses

Information technology (IT) has a large and growing impact on firms and executives. While there are questions about the ability of IT to create a competitive advantage, we make the case that ignoring IT may be to an organization’s and its executives’ peril. Using the lens of internal control issues associated with financial reporting systems, we illustrate how internal control weaknesses associated with IT (ITMWs) can have both a dramatic and negative impact on the firm and its leadership. ITMWs take longer to remediate; are associated with more subsequent restatements, less accurate forecasts, higher audit fees, and lower earnings quality; and are more likely associated with executives losing their positions than non-ITMWs. We argue that ITMW remediation requires more time to plan, rewrite, and implement IT changes than to implement non-IT changes. Extant literature suggests that executives should focus their efforts on IT vulnerabilities and risks rather than IT opportunities.