The effect of CEO overconfidence, audit committee expertise, and internal control weakness on financial statement restatement with audit quality as a moderating variable
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Published:
Oct 26, 2026
Keywords:
Audit Committee Expertise, Audit Quality, CEO Overconfidence, Financial Statement Restatement, Internal Control Weakne
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Articles
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Abstract
This study examines the relationships of CEO overconfidence, audit committee expertise, and disclosed internal control weakness with financial statement restatement, including the proposed moderating role of audit quality. Using annual-report data for 53 Consumer Non-Cyclicals firms listed on the Indonesia Stock Exchange over 2021–2025 (265 firm-year observations), the study applies binary logistic regression. The capital-expenditure-to-operating-cash-flow proxy for CEO overconfidence is positively associated with restatement in the reported main-effects model (B = 1.078; odds ratio = 2.938; p = 0.002). Audit committee expertise and internal control weakness do not show statistically significant Wald results, although extreme coefficient estimates suggest caution in interpreting these findings. Neither estimable audit-quality interaction is statistically significant in the reported output, while the interaction involving internal control weakness cannot be estimated, leaving its moderation hypothesis unresolved. The findings highlight the potential relevance of executive financial-reporting judgments and support closer scrutiny of optimistic assumptions and investment decisions as a governance consideration. However, the data do not establish that these actions, or the Big Four audit-quality proxy, causally prevent restatements.
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How to Cite
Mayer, F., & Suhardianto, N. (2026). The effect of CEO overconfidence, audit committee expertise, and internal control weakness on financial statement restatement with audit quality as a moderating variable. Indonesia Auditing Research Journal, 15(4), 421–430. https://doi.org/10.35335/arj.v15i4.813
References
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Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. The Journal of Law and Economics, 48(2), 371–406. https://doi.org/10.1086/430808
Aier, J. K., Comprix, J., Gunlock, M. T., & Lee, D. (2005). The financial expertise of CFOs and accounting restatements. Accounting Horizons, 19(3), 123–135. https://doi.org/10.2308/acch.2005.19.3.123
Amirah, N., Azhari, N., Hasnan, S., & Sanusi, Z. M. (2020). The Relationships Between Managerial Overconfidence, Audit Committee, CEO Duality and Audit Quality and Accounting Misstatements. 11(3), 18–30. https://doi.org/10.5430/ijfr.v11n3p18
Ashbaugh-Skaife, H., Collins, D. W., Kinney, W. R., & LaFond, R. (2009). The effect of SOX internal control deficiencies on firm risk and cost of equity. Journal of Accounting Research, 47(1), 1–43. https://doi.org/10.1111/j.1475-679X.2008.00315.x
Ashifa. (2022). Kualitas Pelaporan Keuangan: Peran Keahlian Industri Pada Komite Audit The Quality Of Financial Reporting: The Role Of Audit Committee’s Industry Expertise. Jurnal Reviu Akuntansi Dan Keuangan, 12(2), 711–720. https://doi.org/10.22219/jrak.v12i3.22837
Boulhaga, M., Bouri, A., & Elbardan, H. (2022). The effect of internal control quality on real and accrual ‑ based earnings management: evidence from France. Journal of Management Control, 33(4), 545–567. https://doi.org/10.1007/s00187-022-00348-5
Chen, C., & Fransiska, K. (2021). Financial Restatement Period: Internal and External Auditing Mechanism. 24(1), 51–74. https://doi.org/10.33312/ijar.519
Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over financial reporting. The Accounting Review, 82(5), 1141–1170. https://doi.org/10.2308/accr.2007.82.5.1141
Epriana, D. I. (2026). Analisis Pengaruh Financial distress, Internal control weakness, dan Auditor switch terhadap Restatement Laporan Keuangan (Perusahaan Perbankan Terdaftar di BEI 2020-2024). 6(April).
Francis, J. R., Michas, P. N., & Yu, M. D. (2013). Office size of Big 4 auditors and client restatements. Contemporary Accounting Research, 30(4), 1626–1661. https://doi.org/10.1111/1911-3846.12011
Hartono, R. I., & Laksito, H. (2022). Pengaruh Audit Tenure, Fee Audit, Ukuran Kantor Akuntan Publik, Spesialisasi Auditor, Komite Audit Terhadap Kualitas Audit. 11(1981), 1–12.
Hribar, P., & Yang, H. (2016). CEO overconfidence and management forecasting. Contemporary Accounting Research, 33(1), 204–227. https://doi.org/10.1111/1911-3846.12144
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Karningsih, N. L. A. (2026). The Effect of Executive Compensation and Managerial Ownership on Earnings Management with CEO Overconfidence as a Moderating Variable. 4(1), 181–193.
Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. The Journal of Finance, 60(6), 2661–2700. https://doi.org/10.1111/j.1540-6261.2005.00813.x
Nugroho, Y. P., Setiawan, D., & Wedari, L. K. (2022). The Role Of The Audit Committee In Accounting And Finance Expertise On Earnings Quality. 6(2), 41–51. https://doi.org/10.22495/cgobrv6i2p4
Nurcahyati, S. (2025). Pengaruh Ukuran Dewan Komisaris dan Keahlian Komite Audit terhadap Kualitas Pelaporan Keuangan di Sektor Kesehatan. 5(2023).
Otoritas Jasa Keuangan (2026). Siaran pers: Stabilitas sektor jasa keuangan terjaga di tengah meningkatnya ketidakpastian global. https://ojk.go.id/id/berita-dan-kegiatan/siaran-pers/Pages/RDKB-Maret-2026.aspx
Palmrose, Z. V., Richardson, V. J., & Scholz, S. (2004). Determinants of market reactions to restatement announcements. Journal of Accounting and Economics, 37(1), 59–89. https://doi.org/10.1016/j.jacceco.2003.06.003
Presley, T. J., & Abbott, L. J. (2013). CEO overconfidence and the incidence of financial restatement. Advances in Accounting, 29(1), 74–84. https://doi.org/10.1016/j.adiac.2013.03.007
Putra, G. H. M. (2020). The Effect of the Effectiveness of the Audit Committee toward the Quality of Financial Reports. November, 15–24.
Ratih, I. G. A. (2025). Audit committee expertise and political connection towards financial reporting quality with audit quality as a mediator in ASEAN. 14(3), 884–903. https://doi.org/10.18488/11.v14i3.4420
Schmidt, J., & Wilkins, M. S. (2013). Bringing darkness to light: The influence of auditor quality and audit committee expertise on the timeliness of financial statement restatement disclosures. Auditing: A Journal of Practice & Theory, 32(1), 221–244. https://doi.org/10.2308/ajpt-50307
Schrand, C. M., & Zechman, S. L. C. (2012). Executive overconfidence and the slippery slope to financial misreporting. Journal of Accounting and Economics, 53(1–2), 311–329. https://doi.org/10.1016/j.jacceco.2011.09.001
Wahyudi, D., Anshari, R., & Pribadi, M. I. (2025). Pengaruh Keahlian Komite Audit Dan Ukuran Komite Audit Terhadap Kualitas Pelaporan Keuangan di Sektor Infrastruktur. 1.
Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. The Journal of Law and Economics, 48(2), 371–406. https://doi.org/10.1086/430808
Aier, J. K., Comprix, J., Gunlock, M. T., & Lee, D. (2005). The financial expertise of CFOs and accounting restatements. Accounting Horizons, 19(3), 123–135. https://doi.org/10.2308/acch.2005.19.3.123
Amirah, N., Azhari, N., Hasnan, S., & Sanusi, Z. M. (2020). The Relationships Between Managerial Overconfidence, Audit Committee, CEO Duality and Audit Quality and Accounting Misstatements. 11(3), 18–30. https://doi.org/10.5430/ijfr.v11n3p18
Ashbaugh-Skaife, H., Collins, D. W., Kinney, W. R., & LaFond, R. (2009). The effect of SOX internal control deficiencies on firm risk and cost of equity. Journal of Accounting Research, 47(1), 1–43. https://doi.org/10.1111/j.1475-679X.2008.00315.x
Ashifa. (2022). Kualitas Pelaporan Keuangan: Peran Keahlian Industri Pada Komite Audit The Quality Of Financial Reporting: The Role Of Audit Committee’s Industry Expertise. Jurnal Reviu Akuntansi Dan Keuangan, 12(2), 711–720. https://doi.org/10.22219/jrak.v12i3.22837
Boulhaga, M., Bouri, A., & Elbardan, H. (2022). The effect of internal control quality on real and accrual ‑ based earnings management: evidence from France. Journal of Management Control, 33(4), 545–567. https://doi.org/10.1007/s00187-022-00348-5
Chen, C., & Fransiska, K. (2021). Financial Restatement Period: Internal and External Auditing Mechanism. 24(1), 51–74. https://doi.org/10.33312/ijar.519
Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over financial reporting. The Accounting Review, 82(5), 1141–1170. https://doi.org/10.2308/accr.2007.82.5.1141
Epriana, D. I. (2026). Analisis Pengaruh Financial distress, Internal control weakness, dan Auditor switch terhadap Restatement Laporan Keuangan (Perusahaan Perbankan Terdaftar di BEI 2020-2024). 6(April).
Francis, J. R., Michas, P. N., & Yu, M. D. (2013). Office size of Big 4 auditors and client restatements. Contemporary Accounting Research, 30(4), 1626–1661. https://doi.org/10.1111/1911-3846.12011
Hartono, R. I., & Laksito, H. (2022). Pengaruh Audit Tenure, Fee Audit, Ukuran Kantor Akuntan Publik, Spesialisasi Auditor, Komite Audit Terhadap Kualitas Audit. 11(1981), 1–12.
Hribar, P., & Yang, H. (2016). CEO overconfidence and management forecasting. Contemporary Accounting Research, 33(1), 204–227. https://doi.org/10.1111/1911-3846.12144
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Karningsih, N. L. A. (2026). The Effect of Executive Compensation and Managerial Ownership on Earnings Management with CEO Overconfidence as a Moderating Variable. 4(1), 181–193.
Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. The Journal of Finance, 60(6), 2661–2700. https://doi.org/10.1111/j.1540-6261.2005.00813.x
Nugroho, Y. P., Setiawan, D., & Wedari, L. K. (2022). The Role Of The Audit Committee In Accounting And Finance Expertise On Earnings Quality. 6(2), 41–51. https://doi.org/10.22495/cgobrv6i2p4
Nurcahyati, S. (2025). Pengaruh Ukuran Dewan Komisaris dan Keahlian Komite Audit terhadap Kualitas Pelaporan Keuangan di Sektor Kesehatan. 5(2023).
Otoritas Jasa Keuangan (2026). Siaran pers: Stabilitas sektor jasa keuangan terjaga di tengah meningkatnya ketidakpastian global. https://ojk.go.id/id/berita-dan-kegiatan/siaran-pers/Pages/RDKB-Maret-2026.aspx
Palmrose, Z. V., Richardson, V. J., & Scholz, S. (2004). Determinants of market reactions to restatement announcements. Journal of Accounting and Economics, 37(1), 59–89. https://doi.org/10.1016/j.jacceco.2003.06.003
Presley, T. J., & Abbott, L. J. (2013). CEO overconfidence and the incidence of financial restatement. Advances in Accounting, 29(1), 74–84. https://doi.org/10.1016/j.adiac.2013.03.007
Putra, G. H. M. (2020). The Effect of the Effectiveness of the Audit Committee toward the Quality of Financial Reports. November, 15–24.
Ratih, I. G. A. (2025). Audit committee expertise and political connection towards financial reporting quality with audit quality as a mediator in ASEAN. 14(3), 884–903. https://doi.org/10.18488/11.v14i3.4420
Schmidt, J., & Wilkins, M. S. (2013). Bringing darkness to light: The influence of auditor quality and audit committee expertise on the timeliness of financial statement restatement disclosures. Auditing: A Journal of Practice & Theory, 32(1), 221–244. https://doi.org/10.2308/ajpt-50307
Schrand, C. M., & Zechman, S. L. C. (2012). Executive overconfidence and the slippery slope to financial misreporting. Journal of Accounting and Economics, 53(1–2), 311–329. https://doi.org/10.1016/j.jacceco.2011.09.001
Wahyudi, D., Anshari, R., & Pribadi, M. I. (2025). Pengaruh Keahlian Komite Audit Dan Ukuran Komite Audit Terhadap Kualitas Pelaporan Keuangan di Sektor Infrastruktur. 1.
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