Influences of Internal Control on Enterprise Performance: Does an Information System Make a Difference?

Abstract

It is generally perceived that the effective implementation of an adequate internal control system prevents and controls an entity’s risks and improves its procedures and performance. This study empirically investigates the relationship between the internal control system and firms’ performance, with particular emphasis on the moderation role of an integrated information system. For this purpose, a survey was developed and sent to 215 Saudi firms that had implemented an integrated information system. A hundred and two valid responses were received. Partial least squares structural equation modeling was utilized for the data analysis and hypothesis testing. The findings confirmed that organizational structure, prospectors’ strategy, information system quality, and management support significantly influence the internal control system for the study sample. The finding also supports the role of an information system as a moderator variable in the relationship between internal control and organizational performance. Additionally, the study elucidates the importance of information system maturity for information system quality.

Full text

J. Risk Financial Manag. 202 3, 16, 518. https://doi.org/10.3390/jrfm16120518 www.mdpi.com/journal/jrfm
Article
Influences of Internal Control on Enterprise Performance:
Does an Information System Make a Difference?
Hani Alshaiti
Accounting Department, School of Business, King Faisal University, Al Ahsa 36363, Saudi Arabia;
hshaiti@kfu.edu.sa
Abstract: It is generally perceived that the effective implementation of an adequate internal control
system prevents and controls an entity’s risks and improves its procedures and performance. This
study empirically investigates the relationship between the internal control system and firms’ per-
formance, with particular emphasis on the moderation role of an integrated information system. For
this purpose, a survey was developed and sent to 215 Saudi firms that had implemented an inte-
grated information system. A hundred and two valid responses were received. Partial least squares
structural equation modeling was utilized for the data analysis and hypothesis testing. The findings
confirmed that organizational structure, prospectors’ strategy, information system quality, and
management support significantly influence the internal control system for the study sample. The
finding also supports the role of an information system as a moderator variable in the relationship
between internal control and organizational performance. Additionally, the study elucidates the
importance of information system maturity for information system quality.
Keywords: internal control system; information system; performance; contingency; enterprise re-
source planning system; Saudi Arabia
1. Introduction
Internal control (IC) has become the focus of aention whenever a scandal occurs,
especially in the aftermath of the downfall of high-profit organizations such as Enron,
Barings Bank, WorldCom, Tyco, and Ahold (Rae and Subramaniam 2008; Hussaini and
Muhammed 2018). It has been stated that IC could be an important feature of managing
an entity and defending against business failure (IFAC 2012). In other words, the IC sup-
ports the entity based on performance and is the first defensive line utilized to protect the
entity’s assets as well as prevent and detect its errors and fraud.
Globally, regulatory bodies recognize that the implementation of a proper IC system
will normally provide an entity with reasonable assurance that it will improve the entity’s
performance and achieve its goals. IC can be defined as an ongoing process designed by
the directors’ board, chief executive officer, or other party in order to provide reasonable
assurance regarding the accomplishment of the entity’s objectives (COSO 1992). The def-
inition of IC includes three levels of objectives that need to be achieved. The entity requires
IC to focus on the effectiveness and efficiency of its organizational performance, produc-
tivity goals, and the safeguarding of its assets. Another objective of IC deals with the prep-
aration of reliable financial and non-financial reports, including temporary, internal, ex-
ternal, and management reports. The last objective pertains to compliance with regula-
tions and laws to which an organization is subject. IC is a vital feature in an organization’s
structure that can be utilized to develop and deploy monitoring across the entity to ensure
sound governance (Shaiti et al. 2013). It is generally accepted that a sound IC activity can
provide an organization with reasonable assurance that it can protect the entity from fail-
ure, material error, and fraud (Turnbull 1999).
Citation:
Alshaiti, Hani. 2023.
Influences of Internal Control on
Enterprise Performance: Does
an Information System Make A
Difference?
Journal of Risk and
Financial
Management 16: 518.
hps://
doi.org/10.3390/jrfm16120518
Academic Editor:
Thanasis Stengos
Received: 12 November 2023
Revised: 5 December 2023
Accepted: 6 December 2023
Published:
15 December 2023
Copyright:
© 2023 by the author.
Licensee MDPI, Basel, Swierland.
This article is an open access article
distributed under the terms and
conditions of the Creative Commons
Aribution (CC BY) license
(hps://creativecommons
.org/license
s/by/4.0/).

J. Risk Financial Manag. 202 3, 16, 518 2 of 19
Additionally, an IC system is believed to have an influence on social, environmental,
and governance ratings, which indicate organization performance (Hamed 2023). An en-
tity with a strong IC process will outperform one with a weak process (Al-Thuneibat et al.
2015; Pakurár et al. 2019; Tao et al. 2023). Empirical evidence from Jordan shows that an
IC system significantly influences financial performance and sustainability (Hamed 2023).
Therefore, IC quality is an important factor that can enhance the performance of an organ-
ization (Tao et al. 2023). Although the current literature has examined the impact of an IC
process on organizations’ performance, the conclusions are not consistent (Hamed 2023).
In addition, it is important to consider the potential influence of other factors on the IC
system in order to enhance the level of IC quality. There are some prior studies that as-
sessed the influence of different contingent factors based on different perspectives, such
as (Doyle et al. 2007; Zhang et al. 2009; Abbaszadeh et al. 2019), yet more studies are
needed (Doyle et al. 2007). The Doyle et al. (2007) developed a theoretical framework to
provide evidence for the interaction between management support, risk management, the
activities of internal audit, and the quality of internal control. Zhang et al. (2009) found an
influence of financial position, organizational culture, size, management philosophy, in-
ternal auditing, and degree of decentralization on the IC system. Additionally, the authors
of (Abbaszadeh et al. 2019) found that information technology (IT) was associated with
IC.
In order to fill the literature gap, this study aims to investigate the influence of IC
systems on organizational performance. On one hand, this study aempts to explore the
influence of five contingency factors (structure, organizational culture, strategy, top man-
agement support, and information technology factor) on IC systems. On the other hand,
the study further assesses the moderator impact of an information system (IS) on the re-
lationship between IC and organizational performance. The study relationship is ex-
plained by the contingency approach, expanding on the idea that there is no single uni-
versally ideal method or approach for leading or organizing an entity. The most suitable
path to take is determined by internal or external factors; thus, beer organizational per-
formance depends on achieving a more suitable alignment between a control system and
these contingent variables (Fisher 1998). The study responds to a recent call by various
studies (Hamed 2023; Hoai et al. 2022; AlMuhayfith and Shaiti 2020) for further investiga-
tion to increase the understanding of the organizational and information system factors
that impact IC and explain the relationship between the quality of IC and a firm’s perfor-
mance. By shedding light on these relationships, the study offers useful guidance to leg-
islators and organization leaders in developing policies that enhance longstanding per-
formance stability and growth.
The empirical results for this paper draw three conclusions. First, formalized struc-
ture, management support, strategy, and IS quality are important factors for quality IC.
Second, the IC system influences organizational performance. Third, IS quality enhances
the relationship between IC and organizational performance. The remainder of this paper
presents the theoretical development and hypothesis formulation, research design and
data collection, data analysis and findings, discussion, implementation, future research
direction, and, finally, the conclusion.
2. Theoretical Development and Hypothesis Formulation
2.1. Contingency Theory Perspective
The study’s theoretical framework, see Figure 1, is based on a contingency approach,
which can be used as a theoretical lens to view the entity (Donaldson 2001). Fundamen-
tally, the idea of contingency implies that something is valid only within particular cir-
cumstances (Shaiti et al. 2013). Researchers implemented contingency approaches from
different aspects (Otley 1980; Felício et al. 2021; Hutahayan 2020; Hutahayan 2020; Abdel-
Kader and Luther 2008). Otley (1980) proposed the application of the contingency theory

J. Risk Financial Manag. 202 3, 16, 518 3 of 19
to management accounting practices, as “there is no universally appropriate control sys-
tem that applies to all organizations in all circumstances” (p. 413).
The core of the structural contingency approach model is that organizational effec-
tiveness results from fiing organizational factors, such as organizational systems, to con-
tingencies that reflect an organization’s situation (Donaldson 2001). Rosini et al. (2020)
stated that contingency theory is used to analyze management control system (MCS) con-
tingent fit and capability for performance. Matching the MCS to the firm’s capabilities can
enhance performance. Accordingly, a contingency approach can be applied to assess the
influence of contingency variables and the quality of an IC system on organizational per-
formance.
2.2. Formulation of Hypotheses
To locate this study within the body of existing knowledge, a brief review of the rel-
evant literature is conducted, followed by a formulation of the eight proposed hypotheses.
2.2.1. Contingency Factors and IC Quality
One main goal of this research is to examine the influence of contingency factors on
the quality of an IC system. An effective IC system is important for management decision-
making (Changchit et al. 2001), investors’ confidence (Woods 2009; Ionen 2010), and au-
dit quality (Kim 2023). Thus, it is essential to review the available previous studies that
investigated the contingencies that may lead to beer IC. However, limited empirical
studies have been conducted in the area of IC quality and its relationship with other fac-
tors (Rae and Subramaniam 2008; Doyle et al. 2007; Wang et al. 2023). Therefore, to inves-
tigate these factors, some studies related to management control systems (Felício et al.
2021) and corporate governance (Woods 2009) are referenced because IC is an integral
part of them.
2.2.2. Organizational Culture and Management Support
Accounting researchers have found that organizational culture and management
support can affect the quality of an IC system. They argue that an organization with a high
level of collaboration will have a high-quality IC system. A study conducted in China em-
pirically examined how the characteristics of a firm could influence the quality of its IC
system. The study found that organizational size, management philosophy, culture, and
financial position positively impacted IC quality (Zhang et al. 2009). In addition, Sari et al.
(2018) collected data from 270 Indonesian companies through a survey to examine the
relationships between organizational culture, corporate governance, IC, and corporate
performance. Hoai et al.’s (2022) study found that transformational leadership moderated
the association between an IC system and firms’ performance. These findings led us to
include organizational culture, specifically collaboration, and management support as po-
tential contingent factors in the study’s model. Therefore, these relationships are exam-
ined through hypotheses H1 and H2:
H1: Top management support positively impacts an IC system.
H2: Organizational culture positively influences the quality of an IC system.
2.2.3. Structure and Strategy
Considerable focus has been directed towards organizational strategy as a contingent
variable of IC quality. Three types of taxonomies have been implemented in assessing the
relationship between strategy and a MCS: the prospectors/analysts/defenders model
(Miles and Snow 1978), the product differentiation/cost leadership classification (Porter
1980), and the build/hold/harvest model (Gupta and Govindarajan 1984). According to

J. Risk Financial Manag. 202 3, 16, 518 4 of 19
(Abdel-Kader and Luther 2008), these classifications are not considerably different. Con-
sequently, the defenders/cost leaders/harvesters can reconcile at one end of the contin-
uum, whereas the other types of strategy would be at the other end. The author of (Jokipii
2010) showed a significant relationship between organizational strategy and the quality
of an IC system. A study conducted in Russia empirically examined how the organiza-
tional strategy (product differentiation) of a firm could influence its innovation and MCS
dimensions. The findings indicated that three dimensions of the MCS were positively as-
sociated with the organizational strategy (Chenhall et al. 2011). In addition, the quality of
an IC system can be influenced by organizational structure. Zhang et al. (2009) reported
that a decentralized organizational structure is negatively associated with the quality of
IC. Verbeeten (2010) claims that business-unit structure and strategy influence control sys-
tem changes. Accordingly, the following hypotheses are used to examine the relationships
between structure, strategy, and IC quality:
H3: Organizational structure (formalization) positively affects an IC system.
H4: There is a positive influence of prospector strategy on an IC system.
2.2.4. Information System (IS)
An IS is an important factor that is reported to affect the quality of an IC system
(Huang et al. 2008; Pereira et al. 2015; Valipour et al. 2012). According to Granlund (2011),
“accounting researchers should ask in field and survey research a wide number of ques-
tions related to the implementation and use of Information Technology, as it may have
considerable consequences regarding accounting and control practice” (p. 14). The IS con-
cept is related to a set of components or factors that interact in order to achieve the entity’s
goals (Pereira et al. 2015). It can provide an entity with tools for collecting, analyzing, pro-
cessing, innovating, and reporting information (Pereira et al. 2015; Monteiro and Cepêda
2021). It can also help managers develop their firms’ structures, identify the important
processes necessary to achieve the objectives of IC, and mitigate the entities’ risks (Rubino
et al. 2017). IC system researchers claim that the application of a sophisticated IS, such as
the enterprise resource planning system (ERPS), is a necessary process (Huang et al. 2008;
Jarah et al. 2023).
The ERPS is a new generation of IS and is normally implemented in order to integrate
isolated applications into a single database (Huber et al. 2016). The integration includes
data among all an entity’s departments, providing the organization’s manager with a
broader scope. Pereira et al. (2015) illustrates that the ERP system is the one with the high-
est reputation in review articles. Morris (2011) showed that IS features and other charac-
teristics can assist an organization in improving its IC system. He examined 108 United
States (U.S.) firms that implemented an ERPS from 1997 to 2003 and matched them (based
on industry size) with those that did not measure the impact on the IC system. Hsiung
and Wang (2014) studied the effect of IT factors on IC benefits. They found information
quality, system quality, and service quality influenced IC benefits. In (Abbaszadeh et al.
2019), the authors investigated the association between IT and an IC system. They col-
lected data from auditors and managers of Iranian public entities, and they found a sig-
nificant relationship between IT and an IC system. Therefore, the following hypothesis is
tested:
H5: The quality of an IS positively impacts the quality of an IC system.
2.2.5. IS Maturity
The maturity of an IS is a crucial concept that an organization must respect when
assessing IS quality (Shaiti et al. 2013). The maturity of the IS can indicate how extensively
an organization understands and utilizes its system (Holland and Light 2001). It can be

J. Risk Financial Manag. 202 3, 16, 518 5 of 19
used to measure how well the entity’s system is doing and how the entity can gain differ-
ent benefits. Ragowsky et al. (2012) listed a number of factors that enable an entity to be
more mature with regard to its IS, like the users of the IS, the number of constraints, and
how the IS operates. Consequently, the study proposes the following hypothesis:
H6: There is a positive correlation between the maturity of an IS and its quality.
2.2.6. Organizational Performance
Performance can be regarded as among the most important economic concepts for an
entity and for researchers. It is used to measure and evaluate how an entity works to
achieve its business objectives (Hussaini and Muhammed 2018; Akram et al. 2018; Hossin
et al. 2021). Thus, it is important to focus on organizational performance. It has been ar-
gued that enhancing the quality of an IC system can drive organizational performance
(Pakurár et al. 2019; Hoai et al. 2022; Wu and Zeng 2022). An effective and efficient IC
system can assist an organization in fraud prevention (Handoyo and Bayunitri 2021), en-
hance ethical organizational behaviors, strengthen organizational mindfulness (Nguyen
and Hoai 2023), and improve environmental performance (Tao et al. 2023). Al-Thuneibat
et al. (2015) investigated the influence of an IC system on Saudi shareholding companies’
financial performance. They found compliance with the five IC components among the
sample companies. They also indicated a positive impact of IC on assets and equity re-
turns.
Empirical evidence from North American firms found that an effective IC system
supported persistent financial performance (Akisik and Gal 2017). Hussaini and
Muhammed (2018) examined the influence of IC effectiveness on Nigerian banks’ perfor-
mance. They concluded that IC components positively impacted the banks’ performance.
Consistent with (Hussaini and Muhammed 2018), Pakurár et al. (2019) assessed the rela-
tionship between IC and financial performance for Jordanian banks and found that IC
significantly influenced their financial performance. Rosini et al. (2020) found that man-
agement control systems directly affect performance.
Based on the financial data of China’s listed companies, Wu and Zeng (2022) studied
the influence of IC on enterprise performance. They found that IC positively influences
organizational performance. Additionally, Hoai et al. (2022) examined the relationship be-
tween an IC system and firms’ performance, the mediating role of innovation, and the
moderating role of leadership. They examined 319 public Vietnamese organizations and
found that an IC system influenced their organizational performance through the inten-
sity of innovation. Hamed (2023) investigated the effect of IC systems on financial perfor-
mance in Amman’s listed banks. They found that the study sample’s banks complied with
IC constraints and that IC system compliance significantly influenced their financial per-
formance and sustainability. Consequently, the author proposes the following hypothesis:
H7: IC quality positively affects organizational performance.
2.2.7. The Moderating Role of IS Quality
An IS is basically a set of components used to collect, process, store, and analyze data
and to provide relevant information to support management operations and decisions
(Hailu 2014). An IS plays a significant role when it influences a firm’s functions, perfor-
mance, and productivity. According to Kehinde and Soyebo (2012), a good quality IS en-
ables an organization to prepare an effective plan, control the organization’s activities,
and make more accurate decisions. A study (Hailu 2014) found that an IS impacts organ-
izational performance. Additionally, AlMuhayfith and Shaiti (2020) found that an inte-
grated IS, such as SAP and Oracle, influenced organizational performance. Therefore, this
study argues that the impact of IC quality on organizational performance would be en-
hanced by greater IS quality, and it thus proposes the following hypothesis:

J. Risk Financial Manag. 202 3, 16, 518 6 of 19
H8: The quality of an IS moderates the relationship between the quality of IC and business perfor-
mance.
Figure 1. The theoretical framework.
3. Research Design and Data Collection
3.1. Research Method
This study draws on the principle of contingency theory in accounting studies to de-
velop a contingency model of IC system organizational performance, which could help to
understand, describe, and predict the quality of an IC system in relation to organizational
performance. In line with the study’s theoretical framework, a positive approach is
adopted, which involves collecting quantitative data to address the research questions
(Abdel-Kader and Luther 2008). This approach relies on the presumption that social real-
ity is relatively objective, and it relies on empirical evidence (Saunders et al. 2009).
For this study’s aim and objectives, the positivist approach is applicable as it empiri-
cally develops a theoretical framework for effective corporate performance. The positivist
approach is aligned with the deductive model. Thus, the study began by building the the-
oretical framework, which contains eight hypotheses, after reviewing the literature. A sur-
vey strategy, particularly the questionnaire technique, was applied to collect the main data
and assess the hypotheses. This method is commonly applied for theory testing within the
management accounting discipline (Abdel-Kader and Luther 2008) because it facilitates
the collection of a large amount of data from a considerable population and helps to con-
trol cost and time constraints (Saunders et al. 2009). Structural equation modeling (SEM)
is applied for analyzing the data in this study. SEM is one of the sophisticated statistical
techniques utilized by a number of researchers to promote theory development and model
testing (Hair et al. 2013; Akram et al. 2018). In SEM, there are two approaches that can be
applied to estimate study relationships: covariant-bases SEM (CB-SEM) and partial least
squares SEM (PLS-SEM). For this study, the PLS-SEM is implemented because it has the
minimum demands on residual distributions, measurement scales, and a large sample
size (Hair et al. 2013).

J. Risk Financial Manag. 202 3, 16, 518 7 of 19
3.2. Sample and Data Collection
All Saudi companies that were found to have implemented an integrated IS, such as
SAP, Oracle, and PeopleSoft systems, were included in the study sample. However, since
there was lile data on Saudi firms that had implemented an integrated IS in the previous
literature, different data sources were utilized in the present study. These included several
experimental studies that were conducted on Saudi businesses, like (Al-Muharfi 2010; Al-
Turki 2011; AlMuhayfith and Shaiti 2020). Some of the ERPS vendors in Saudi Arabia were
contacted to obtain the names of the companies that had implemented an ERP system in
Saudi Arabia (as ERP is an integrated IS). Moreover, some websites were used, such as the
Ministry of Commerce and Industry. A list of 215 companies that had implemented an
integrated IS in Saudi Arabia was obtained. Finally, emails were sent to the 215 companies
in order to confirm that the companies had an integrated IS and were willing to participate
in the study.
For the data collection, an initial questionnaire was developed based on the literature
review, and it was reviewed by three academic staff and two professionals. In addition,
the ethical commiee at King Faisal University (the sponsor body) confirmed that there
were no ethical issues related to the questionnaire items. The questionnaire was distrib-
uted among the participants by email, and 108 valid responses were received (a 50% re-
sponse rate). After collecting the empirical data, the developed model and its hypotheses
were assessed using SmartPLS 4 software.
3.3. Research Instruments
A survey with the following structure was developed and used to measure the
study’s eight constructs: The study’s main aim and the confidentiality of the provided
information were stated on the first page of the survey to avoid bias in the responses. The
questionnaire consisted of four sections. The first one assessed the quality of the IC sys-
tem; the four objectives of the Commiee of Sponsoring Organizations (COSO) farmwork
were used. The following section measured business performance with four indicators
(economic, financial, environmental, and communication). The third section included all
the statements that measured the study’s contingencies: structure, strategy, management
support, organizational culture, IS, and IS maturity. The last section included questions
that related to demographic data (IS brand, company type, and participants’ education).
The items used to measure the constructs were selected based on previous research (see
Table 1). The five-point Likert scale was applied with ‘Strongly Disagree’, for one point,
and ‘Strongly Agree’, for five points.
Table 1. Questionnaire items.
Construct
Number of Measures
Source
1. IS maturity
5 items
(Nolan 1979)
2. Culture (
collaboration) 3 items
(Detert et al. 2000; Jones et al.
2006)
3. Top management support
5 items
(Jaworski and Kohli 1993; Naha-
vandi and Malekzadeh 1993;
Linying et al. 2009)
4. Strategy (prospector)
5 items
(Croteau and Bergeron 2001;
Felício et al. 2021)
5. Structure (formalization)
3items
(Pugh et al. 1968; Donaldson
2001)
6. IS quality
7 items
(DeLone and McLean 1992;
Myers et al. 1997; Gable et al.
2003)
7. Internal control quality
4 items
(COSO 2004)

J. Risk Financial Manag. 202 3, 16, 518 8 of 19
8. Performance
4 items
(Staniškis and Arbačiauskas
2009; Akram et al. 2018;
AlMuhayfith and Shaiti 2020)
Additionally, the PLS-SEM approach was applied for data analysis. PLS is a structure
equation modeling technique that provides a promising avenue for a latent variable path
modeling technique to be applied without being constrained by some presumptions, like
normality or the need for a substantial sample size (Fornell and Larcker 1981). Many re-
searchers have utilized this approach in relation to management support (Fornell and
Larcker 1981), information systems (Vinzi et al. 2010), and accounting research (Hall and
Smith 2009; Lee et al. 2011; Akram et al. 2018; Widyastuti et al. 2023).
4. Data Analysis and Findings
In the first stage of the data analysis, Statistical Product and Service Solutions (SPSS)
26 software was used to process descriptive statistics to assess the respondents’ demo-
graphic characteristics (firm type, qualification, and IT brand). For the firm types listed in
the questionnaire, the highest response rate came from joint liability firms (39.5%), fol-
lowed by public firms (30%), whereas the lowest response rate came from private firms
(6%). This implies that applying an integrated IS is not common among private firms. This
is because the majority of private firms are small, and it would be costly to implement a
high-quality system.
The results in Table 2 show that most of the participants have a bachelor’s degree.
Approximately 74% of the respondents have a bachelor’s degree in accounting, finance,
or management, whereas 26% have a diploma degree. Thus, the respondents were rela-
tively knowledgeable in the research area. Moreover, the results show that Saudi enter-
prises employ over 30 different brands of integrated IS software. According to
AlMuhayfith and Shaiti (2020), integrated IS software can be classified by well-known
systems, such as SAP, Microsoft Dynamic AX, and Oracle, and less well-known systems,
such as Peachtree, Solution, and HeloolERP. Ta b l e 2 shows that 74% of the respondents
used well-known IS software, whereas only 26% used less well-known software.
In the next stage, the PLS-SEM approach was utilized to examine the correlation co-
efficient and assess the influences between the study’s variables (Lee et al. 2011). Two PLS-
SEM models were used for data analysis (Hair et al. 2013). The first one is the outer model,
which identified and assessed the correlation between the observation data and the latent
variables. Particularly, it assessed internal consistency reliability, composite reliability,
and discriminate and convergent validity. The second model was the inner model, which
was used to assess the relationships between the study variables using a structure scale
(Hair et al. 2013).
Table 2. Demographic characteristics of the respondent companies.
Characteristics
N
n%
Firm Type
Private firm
6
5.5%
Limited partnership
27
25%
Joint liability firm
42
39.5%
Public firm
33
30%
Qualification
Bachelor in Acc. or Fin.
69
64%
Bachelor in Bus. Man.
10
10%
Diploma in Acc. or IS
29
26%
IT Brand
Well-known
80
74%
Less well-known
28
26%

J. Risk Financial Manag. 202 3, 16, 518 9 of 19
4.1. The Outer Model
Before assessing the significance of the relationships among the study’s constructs, it
is important to evaluate the outer or measurement model. First, the study removed all
cases that had over 10% of missing data. Thus, six cases were removed. Second, the factor
loading for each indicator was examined. All items loaded onto their respective constructs;
however, eight items (ISQ4, ISQ5, Strategy 4, MS2, MS4, Maturity 4, Structure 3, and Per-
formance 1) had factor loadings of less than 0.5, which added a few values to the model
explanation; thus, these were removed (Hulland 1999; Hair et al. 2010). Table 3 shows the
factor loadings of the indicators after removing low-loading factors.
Table 3. Validity and reliability of the constructs.
Construct Item
Loading
CA
CR
AVE
R
2
Management Support
-Supporting research, development, and innovation
0.692
0.758
0.857
0.688
-Preferring to delegate tasks to others
0.835
-Staff are involved in strategic planning and technical direction
0.911
Culture (Collaboration)
-Usually, staff choose to work in project teams
0.864
0.754
0.860
0.674
-Staff are willing to share data between them
0.895
-Entity inspires its staff to be free in their thinking and in producing ways
to do their teamwork-related jobs
0.690
Strategy
-Development of new products and services is supported by the entity’s
mission and actions
0.778 0.877 0.916 0.732
-Entity leads its sector in the direction of innovation
0.856
-Usually, the entity‘s actions lead to new rounds of competitive ad-
vantage in the sector
0.892
-Entity is generally involved in high-risk projects
0.890
Structure (Formalization)
-Entity has diversified occupational specialties
0.869
0.762
0.892
0.805
-Description of the job is presented
0.925
IS Maturity
-Number of IS users has increased since implementation
0.875
0.827
0.882
0.653
-IS applications that are used satisfy the entity’s needs
0.833
-Satisfaction with the control processes and standards of the IS’s re-
sources
0.760
-Since the implementation of the IS, the control of traditional data pro-
cessing activities has become tighter
0.759
IS Quality
0.29
-Entity’s [IS] is easy to use
0.861
0.843
0.889
0.617
-Entity’s [IS] is easy to learn
0.805
-Entity’s [IS] meets the users’ requirements
0.808
-Entity’s [IS] requires a minimum number of computers
0.656
-Data within the [IS] are fully integrated
0.784
Internal Control Quality
0.57
-Compliance with applicable laws and regulations
0.771
0.803
0.871
0.627
-Effectiveness and efficiency of operations
0.858
-Reliability of financial reporting
0.793
-Management efficiently establishes its strategic objectives
0.743
Performance
0.39
-Entity responds quickly to the first signs of opportunity/innovation
0.699
0.652
0.811
0.590

J. Risk Financial Manag. 202 3, 16, 518 10 of 19
-Normally, profitability targets are achieved
0.770
-Operation and product characteristics are improving
0.830
Third, Cronbach’s alpha, composite reliability, and convergent validity were as-
sessed. As shown in Table 3, based on the value of Cronbach’s alpha, the composite relia-
bility for all of the constructs is above 0.7 (Hulland 1999; Hair et al. 2010), except for per-
formance, whose value is less than the established criterion of 0.70. According to Hair et
al. (2013) and Nunnally (1978), researchers generally consider the minimum level to be
0.70; however, lower correlations for a questionnaire item might be justifiable and accepta-
ble. A benchmark for Cronbach’s alpha value of 0.60 and above is common in the context
of IS and technology studies (Mano et al. 2023; Yohans et al. 2023).
Fourth, the average variance extracted (AVE) values for all the constructs are more
than 0.5 degrees, which establishes convergent validity (Fornell and Larcker 1981). Fifth,
the discriminant validity was assessed utilizing the Fornell-Larcker technique (Fornell and
Larcker 1981). Table 4 shows an agreeable level of discriminant validity, as the square
roots of the AVE values are greater than the inter-latent construct correlation.
Table 4. Correlation matrix among the study constructs (AVE square root).
Culture
Formalization
ICQ
ISQ
MS
Maturity
Perform.
Strategy
Culture
0.821
Formalization
0.441
0.897
ICQ
0.352
0.582
0.792
ISQ
0.200
0.225
0.479
0.786
MS
0.432
0.350
0.488
0.125
0.818
Maturity
0.223
0.240
0.467
0.546
0.210
0.808
Perform.
0.408
0.417
0.606
0.347
0.551
0.394
0.768
Strategy
0.422
0.638
0.628
0.329
0.514
0.281
0.500
0.855
Note: Values in italics represent the square root of the AVE value.
4.2. Testing the Hypotheses
After satisfactorily analyzing the outer model, the next step in PLS-SEM analysis is
to assess the inner model. Figure 2 was estimated using the SmartPLS 4 software to assess
the inner model and test the hypotheses. One main standard assessment criterion is the
coefficient of determination (R2) technique. As in ordinary least squares regression (OLS),
the R2 value in PLS illustrates the proportion of the total variance of the variables that is
described by the model (Hair et al. 2013). The R2 of the endogenous variable is the predic-
tive power utilized to assess the inner model. It is typically the first value evaluated by
researchers (Chin 2010). Table 3 shows that the value of R2 for the IC quality is 0.572, which
means that formalization, management support culture, strategy, and IS quality explain
57.2% of the variance in the IC quality. In addition, the R2 for organizational performance
is 0.397, which means that IC quality and the indirect effect of the study’s organizational
factors explain 39.7% of the variance in organizational performance. Compared to other
studies in the accounting field, such as those by (Hartmann 2005; Naranjo-Gil and Hart-
mann 2006; Chenhall et al. 2011; AlMuhayfith and Shaiti 2020; Hoai et al. 2022), these R2
values fall within an acceptable range.

J. Risk Financial Manag. 202 3, 16, 518 11 of 19
Figure 2. Path coefficients with a path diagram for the whole sample.
Moreover, the predictive relevance technique is used in addition to the path coeffi-
cient (R2) technique to evaluate the structure model (Chin 2010). This technique assesses
the model’s capability to predict. The predictive relevance (Q2) results hypothesize
whether the model is capable of predicting each endogenous latent variable’s indicators
adequately (Hair et al. 2013). For the study, Q2 was assessed using the cross-validity com-
munality, as illustrated in Tabl e 5, which should be greater than zero in order to indicate
that the model is considered to have predictive validity.
Table 5. Cross-validity communality.
Construct
Cross-Validity Communality
1. IS maturity
0.69
2. Culture (collaboration)
0.87
3. Top management support
0.76
4. Strategy (prospector)
0.74
5. Structure (formalization)
0.78
6. IS quality
0.73
7. Internal control quality
0.61
8. Performance
0.65
Table 5 shows positive Q2 results for the eight constructs, which suggests the study’s
model has predictive relevance.
In addition, the software makes no distributional assumptions; thus, bootstrapping
(5000 samples with replacement) was applied to test the statistical significance of each
path coefficient (Hair et al. 2013). Ta b l e 6 presents the results for the significance of each
path coefficient. Among the contingency variables, management support, organizational
strategy, and formalization were found to be significantly associated with IC quality (β =
0.248, ρ = 0.000; β = 0.222, ρ = 0.015; and β = 0.302, ρ = 0.001, respectively) at a level of 0.5.
Additionally, a positive and significant relationship between IS quality and IC quality was
found (β = 0.316, ρ = 0.000). However, organizational culture showed no significant effect
on IC quality (β = -0.045, ρ = 0.555). Furthermore, IS maturity was significantly related to
IS quality (β = 0.546, ρ = 0.000). The results also showed that IC quality significantly influ-
enced organizational performance (β = 0.563, ρ = 0.000).

J. Risk Financial Manag. 202 3, 16, 518 12 of 19
Table 6. Significance of the path coefficients.
Beta
Standard Deviation
(STDEV)
T Statistics p Values Decision
Culture -> ICQ
−0.045
0.077
0.274
0.555
Non-Sig
Formalization -> ICQ
0.302
0.093
3.260
0.001
Sig
MS -> ICQ
0.248
0.068
2.627
0.000
Sig
Maturity -> ISQ
0.546
0.088
6.178
0.000
Sig
Strategy -> ICQ
0.222
0.091
2.433
0.015
Sig
ISQ -> ICQ
0.316
0.088
3.606
0.000
Sig
ICQ -> Perform.
0.563
0.075
7.437
0.000
Sig
ISQ × ICQ -> Perform.
0.167
0.083
2.026
0.043
Sig
The study also hypothesized that IS quality would have a moderating influence on
the relationship between IC quality and organizational performance. The moderation
analysis was calculated by utilizing the PLS product indicator method. As stated by
Becker et al. (2018), in a structural model, a moderator factor can influence the strength or
even the direction of the relationship between constructs. Therefore, to assess the possi-
bility of IS quality having a moderating effect, IC quality as a predictor and IS quality as
a moderator were multiplied to create an interaction construct and predict organizational
performance. Ta b l e 6 indicates that the estimated standardized path coefficients for the
influence of IC quality × IS quality on organizational performance (β = 0.167; ρ = 0.043)
were positive and significant at a level of 0.05. This indicates that the positive influence of
IC quality on business performance is stronger when IS quality is at a high level, as shown
in Figure 3. Therefore, H8 is supported.
Figure 3. Moderator effect.

J. Risk Financial Manag. 202 3, 16, 518 13 of 19
5. Discussion
This study developed and validated a theoretical model based on empirical data
gathered within the context of the Saudi Arabian corporate environment. In particular,
the study examined eight hypotheses. A regression analysis was conducted to assess the
study hypotheses. Based on the findings shown in Table 6, seven hypotheses were sup-
ported, and one was rejected. Additionally, the adjusted R2 was 0.572 for IC quality and
0.397 for organizational performance, which fall within an acceptable range compared
with those in many previous studies in the accounting field (AlMuhayfith and Shaiti 2020;
Hoai et al. 2022; Hamed 2023).
The findings of hypothesis testing support the proposed correlation between man-
agement support (assessed by three indicators) and IC quality in Hypothesis 1. The cur-
rent study is consistent with those of (Abernethy et al. 2010; Doeleman et al. 2012). Both
studies indicated that leadership style significantly predicts the control system. According
to Jarah et al. (2023), an IC system is a process influenced by an entity’s managers that
provides sufficient confidence about the accomplishment of the entity’s objectives. Sur-
prisingly, the study’s results show no evidence of the impact of organizational culture
(collaboration) on IC quality. This means that staff believe that individual work would be
more valuable for the quality of IC than teamwork. This indicates that a high-quality IC
system may be based on an individualistic workplace culture. This is consistent with
Alzeban (2015), which indicated that individualism positively impacted the quality of in-
ternal audits.
For organizational structure, the findings showed a positive influence of formaliza-
tion on IC quality. These findings are consistent with those obtained in contingency stud-
ies, which indicate that formalized and specialized structures are correlated with a sound
MCS (Hutahayan 2020; Felício et al. 2021). Dropulić and Rogošić (2014) examined the term
of an MCS as a package of controls and indicated that most of Croatia’s firms used for-
malized management control systems. Additionally, Shafie et al. (2019) found that organ-
izational structure significantly impacted the effectiveness of IC.
Furthermore, for Hypothesis 4, the finding supports the authors, who argued that
the acceptance of a prospector strategy would positively correlate with the field of MAS
(Abdel-Kader and Luther 2008; Verbeeten 2010; Rahi et al. 2022), which means that the
sample firms should concentrate on features such as innovation, competitive advantage,
and strategic planning. The findings are also consistent with the results of (Jokipii 2010;
Chenhall et al. 2011). Jokipii (2010) showed that strategy was positively correlated with
control. In more detail, a study conducted in Russia empirically examined how the organ-
izational strategy (product differentiation) of a firm could influence the MCS dimensions.
Three dimensions of the MCS were used: formal controls, organic innovative culture, and
a package of controls composed of social networking. The findings indicated that strategy
and product differentiation were positively associated with the three MCS dimensions
(Chenhall et al. 2011).
According to the results of the structural model, the quality of an IS positively influ-
ences that of IC. The finding is consistent with those in some studies, such as (Morris 2011;
Valipour et al. 2012; Monteiro and Cepêda 2021; Jarah et al. 2023). Studies such as Morris
(2011) document that IC weaknesses are reported less for companies that use IT systems
than those who do not. These studies specify compelling proof of how an IS plays a crucial
role in enhancing the quality of IC. Using qualitative data, Valipour et al. (2012) showed
that the five COSO’s framework components were affected by the adoption of the ERPS.
In addition, Jarah et al. (2023) found that an accounting IS, specifically system and infor-
mation quality, significantly influenced an IC system by providing several methods and
processes to facilitate it.
In addition, the empirical results showed a positive association between IS maturity
and IS quality. This result aligns with the idea that the level of maturity could influence
IS quality in varying ways (Ragowsky et al. 2012; Al MohamadSaleh and Alzahrani 2023).
The authors of Voordijk et al. (2003) found that the successful implementation of the ERPS

J. Risk Financial Manag. 202 3, 16, 518 14 of 19
depended on the strategic role of IT, IS maturity, firm strategies, and the implementation
approach. Furthermore, Dias and Souza (2004) illustrated that the ERPS maturity stage
can be recognized as a competitive advantage for an entity. Additionally, Suh et al. (2017)
found a moderating influence of IS maturity on the association between IS investment and
the success of IS quality. They indicated that even with the existence of a robust impact of
IS investment on IS quality, IS maturity, as a moderator, improved the impact of IS invest-
ment on IS success.
The main purpose of this study was to examine the impact of IC quality on organi-
zational performance. It has been stated that IC is a fundamental feature for preventing
risks and a prerequisite for successful operations and performance (Rae and
Subramaniam 2008). The current study’s findings support this argument. The results
show that IC quality strongly influences organizational performance (β = 0.563, ρ = 0.000).
This result is consistent with findings in previous empirical studies (Hussaini and
Muhammed 2018; Pakurár et al. 2019; Felício et al. 2021; Hoai et al. 2022; Hamed 2023).
Pakurár et al. (2019) examined the impacts of supply-chain integration and IC on Jorda-
nian banks’ financial performance and found them significant. They illustrated that IC is
positively associated with financial performance. Consistently, Hoai et al. (2022) reported
that IC effectiveness positively influenced firms’ performance. Hamed (2023) examined
the effect of an IC system on the banking sector’s financial performance. It indicated that
an effective IC system could be a key factor for appropriate performance.
Finally, the finding related to Hypothesis 8 indicated that IS quality moderates the
relationship between IC quality and organizational performance (β = 0.167; ρ = 0.043). The
results imply that even with the existence of a strong effect of IC quality on performance,
IS quality as a moderator improves the impact of IC quality on firms’ performance. No
previous study has illustrated this relationship. However, the findings in (Hailu 2014;
AlMuhayfith and Shaiti 2020) partially support the current study findings. Both studies
found that an IS (ERPS) influenced organizational performance.
6. Implications and Future Research Directions
Although previous studies have examined the link between an IC system and organ-
izational performance (Akisik and Gal 2017; Hussaini and Muhammed 2018; Pakurár et
al. 2019; Hoai et al. 2022; Hamed 2023), this study could be the first to investigate the in-
fluence of IS quality as a moderator variable on the relationship between IC quality and
firm performance. Additionally, the study’s findings emphasize the important role of an
IC system and other contingency variables in enhancing organizational performance.
Practically, this study has implications for the adoption of an IC system and its influence
on organizational performance. Company managers must not only implement effective
IC systems but must also consider some important factors, such as company strategy and
structure, in implementing an effective IS to enhance their companies’ performance. Ad-
ditionally, the findings urge companies without an IS or those planning to implement one
to recognize the importance of implementing an effective IS.
This study has some limitations that justify the need for additional discussion and
the opportunity to explore future research avenues. From a theoretical viewpoint, because
of the complexity of the study’s structure model, the author could not identify and include
all potential organizational factors that may influence the two main constructors. Accord-
ing to Al-Thuneibat et al. (2015), the influence of an IC system on organizational perfor-
mance may vary depending on different organizational factors. Future research can ex-
plicitly include different factors, for example, some leadership aributes, politics, uncer-
tainty, competition, sustainability practices (Al-Thuneibat et al. 2015; Hoai et al. 2022; Rahi
et al. 2022), and other organizational factors, to address their effects on the study’s main
relationships.
From an empirical viewpoint, this study’s context is confined to a specific subset of
Saudi entities that have implemented an IS. Future research could be enhanced by con-
ducting research on two types of firms: IS-implemented firms and non-IS-implemented

J. Risk Financial Manag. 202 3, 16, 518 15 of 19
firms. This would help to compare and provide a beer understanding of the relationships
between the study’s variables and enhance the generalizability of the findings.
7. Conclusions
Based on the importance of the IC system and its role in enhancing the performance
of an organization, this study developed a structural model of the contingency variables
and IC quality that could predict an improvement in organizational performance for
Saudi firms. This is a topic that has not yet been explored adequately in the literature.
Therefore, the structural model was first developed, followed by an assessment of the var-
iables that predict organizational performance. The empirical results of the structure
model indicated several noteworthy observations. Firstly, the findings provided evidence
that supports the impact of IC systems on organizational performance. Secondly, the re-
sults showed the effectiveness of management support, IS quality, organizational struc-
ture, and strategy on the quality of an IC system. These findings prove that top manage-
ment is more interested in having a high level of IC quality. Additionally, a formalized
structure provides an organization with an adequate IC system. The findings also offer
evidence that supports the importance of an IS in enhancing the quality of IC. Lastly, the
study illustrated the moderating effect of IS quality on the relationship between an IC
system and organizational performance.
Funding: The authors acknowledge the Deanship of Scientific Research at King Faisal University
for financial support (Grant No. 4034).
Institutional Review Board Statement: The study was conducted according to the guidelines of the
Declaration of Helsinki and approved by the Deanship of Scientific Research Ethical Commiee,
King Faisal University (project number: GRANT4034, date of approval: 1 May 2023).
Informed Consent Statement: Informed consent was obtained from all subjects involved in the
study.
Data Availability Statement: Data can be made available upon request.
Conflicts of Interest: The author declares no conflict of interest.
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