Audit committee quality,auditor independence,and internal control weaknesses |
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Authors: | Yan Zhang Jian Zhou Nan Zhou |
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Affiliation: | 1. School of Management, State University of New York at Binghamton, Binghamton, NY 13902-6000, United States;2. Lubin School of Accounting, Whitman School of Management, Syracuse University, NY 13244-2450, United States |
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Abstract: | In this paper we investigate the relation between audit committee quality, auditor independence, and the disclosure of internal control weaknesses after the enactment of the Sarbanes-Oxley Act. We begin with a sample of firms with internal control weaknesses and, based on industry, size, and performance, match these firms to a sample of control firms without internal control weaknesses. Our conditional logit analyses indicate that a relation exists between audit committee quality, auditor independence, and internal control weaknesses. Firms are more likely to be identified with an internal control weakness, if their audit committees have less financial expertise or, more specifically, have less accounting financial expertise and non-accounting financial expertise. They are also more likely to be identified with an internal control weakness, if their auditors are more independent. In addition, firms with recent auditor changes are more likely to have internal control weaknesses. |
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Keywords: | Internal control weakness Audit committee financial expertise Auditor independence Sarbanes-Oxley Act |
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