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Exploring IT Security's Impact on Financial Stability and Audit Practices in E-commerce

This research paper delves into the critical link between IT security and financial performance in e-commerce. It discusses vulnerabilities, the consequences of IT failures, and the need for optimal security investments. By analyzing archival data and event studies, it evaluates the direct and intangible losses associated with security breaches, including customer trust and market capitalization. Citing relevant studies, the paper also examines how security expenditures affect audit fees and compliance with regulatory standards like Sarbanes-Oxley, fostering a better understanding of the cost-benefit relationship in IT security.

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Exploring IT Security's Impact on Financial Stability and Audit Practices in E-commerce

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Presentation Transcript

  1. Potential Research Topics in IS Security and Audit Vern Richardson, University of Arkansas

  2. Contributions of this paper • Carr’s (2003) Arguments • May not get a competitive advantage from IT • Vulnerabilities still critical • Types of IT Failures • E-commerce Engine • Website Outage (Hacker, Failure) • Financial Statement System Error (Sarbanes Oxley) • Accounting Restatements and Earnings Revisions

  3. Losses from Lack of IT Security • Direct Tangible Losses • Earnings (Market Capitalization) Lost due to Web Outage • Money spent on security • Intangible Losses • Loss of Customers/ Website Experience • Lack of Faith – BBB? Webtrust? • Privacy – Loss of Credit Card Data • What’s the optimal amount to spend? When is it too much? • Yager (2002) suggests that CIOs overspent on security. • Which of these measurable using archival techniques?

  4. Event Studies • Anthony, Choi and Grabski (2005) show losses of 3.92% market cap around web outage • Ettredge and Richardson (2003) show event study losses by Internet firms in the same industry as those hacked as well as Internet firms that were not hacked at all.

  5. Effects on Industries Not Directly Affected By Denial of Service (Feb. 2000) “Information Transfer among Internet Firms: The Case of Hacker Attacks,” Journal of Information Systems, (Fall 2003): 71-82 (with M. Ettredge).

  6. Triangulation beyond Event Studies • Issue with event study – ex ante prediction of potential affect on firms • Does an impairment actually affect revenues – can you capture that? • Have anecdotal evidence, does it show in the statistics as well? • See it in Retail firms – via monthly sales? • Nielsen Net Ratings – measure effect on: • Hits (Both during that period and after) • Stickiness – how long do they stay? • Repeat Customers or most profitable customers? • How about long-run returns? • Money spent on IT Security and its effects on: • Audit fees? Sarbanes-Oxley? • Errors? Extent of Restatements?

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