To protect investors, regulators increasingly rely on regulating firms’ internal controls over financial reporting, but they punish noncompliance only if an internal control weakness enabled accounting manipulation. In other words, enforcement is manipulation-contingent. We develop an economic model with a manager who sequentially chooses internal control quality and manipulative effort, and a welfare-maximizing regulator who determines an internal control standard, the penalty size for internal control weaknesses, and when to invoke such a penalty. Internal control regulation under manipulation-contingent enforcement not only provides incentives to invest in internal controls, but also improves manipulation deterrence when there are internal control weaknesses. The optimal regulation takes advantage of this additional deterrence effect by using a very strict internal control standard and an intermediate penalty that is only levied in the event of accounting manipulation. Overall, we rationalize why the commitment to lenient enforcement of internal control regulation is optimal.

为了保护投资者，监管者越来越依赖监管公司对财务报告的内部控制，但只有在内部控制薄弱环节能够进行会计操纵的情况下，它们才会惩罚违规行为。换句话说，强制执行是偶然的。我们开发一种经济模型，其中的经理会依次选择内部控制质量和操作工作，并会制定福利最大化的监管机构来确定内部控制标准，内部控制弱点的罚款额度以及何时提起此类罚款。在有内部控制弱点的情况下实施内部控制法规，不仅可以激励人们投资内部控制，而且还可以在存在内部控制薄弱环节时提高对内部控制的威慑力。最佳监管通过使用非常严格的内部控制标准和仅在会计操纵时才征收的中间罚款来利用这种额外的威慑作用。总体而言，我们合理地解释了为什么宽大执行内部控制法规的承诺是最佳的。