The relationship between the control environment and the adoption of control self-assessment in Malaysian local banks

Abstract

The financial scandals of recent years have highlighted the weaknesses in the internal control systems of many companies. This has led to increased attention on internal controls, from governments and supervisory bodies all over the world. Today, the need for strong internal control systems continues to grow and the importance of managing risks has never been higher. This paper investigates the relationship between the control environment and the adoption of Control Self-Assessment (CSA). The control environment is the foundation for all other components of internal control and sets the tone of the organization, influencing the control consciousness of its people. Whereas Control Self-Assessment is a process through which internal control effectiveness is examined and assessed with the objective of providing reasonable assurance that all business objectives will be met. The subject of the study revolves solely around the control environment excluding other possible variables affecting the internal control system. This study concludes that there is no relationship between CSA adoption and the control environment. The possibility that no relationship is found between the variables can be explained with Hofstede's cultural dimensions. Malaysia is considered as having a high power distance and low individualism culture, where the society has lesser equality, empowerment and opportunity to speak for itself. The duration of CSA adoption may also be a factor concerning its impact on the control environment. Thus, further research is recommended to determine the differences between the two (2) variables.