Toward an Expanded Control Environment Framework

K. E. Hughes II
Louisiana State University

Timothy J. Louwers
Louisiana State University

J. Kenneth Reynolds
Louisiana State University

Abstract: Much of the national media’s attention raised in response to the recent “meteor shower” of corporate scandals has focused on “know-nothing” CEOs and complacent/conflicted auditors who missed the accounting frauds. In each case, ‘revelations’ abound as to the lax corporate control environments and defective or non-existent audit procedures that prevented the identification of potential abuses. While we agree that strong corporate control environments are critical to responsible and reliable financial reporting, we argue that these failures are not occurring within a self-contained, corporate environmental vacuum. Rather, these failures are spawned within the context of a much larger societal control environment. We expand the existing conceptual model of the corporate control environment to include nominal externalities, such as cultural mores and societal “tone at the top,” and provide anecdotal evidence suggesting that society’s relatively weak control environment has allowed these failures to proliferate.

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