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Adoption of S arbanes‐ O xley Act in C hina: Antecedents and Consequences of Separate Auditing
Author(s) -
Zhang Jidong,
Han Jing
Publication year - 2016
Publication title -
international journal of auditing
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.583
H-Index - 21
eISSN - 1099-1123
pISSN - 1090-6738
DOI - 10.1111/ijau.12057
Subject(s) - audit , accounting , business , control (management) , internal audit , quality (philosophy) , quality audit , economics , management , philosophy , epistemology
This study examined C hinese public companies’ reactions to regulations imposed by the Enterprise Internal Control Standard (the C hinese version of the S arbanes‐ O xley Act). We found some C hinese public companies used separate CPA firms to audit their internal control over financial reporting and financial statements – a practice that has not been addressed in prior studies on SOX adoption. In this paper, we examine the antecedents and consequences of separate auditing. First, because audit quality is an important aim of the Enterprise Internal Control Standard, we tested the influence of separate auditing on audit quality. Moreover, we theorized and hypothesized that a company's decision to employ separate auditing was influenced by the presence and proportion of directors on the board who performed multiple functions, thus affecting their concerns about the company's internal and external relations. An empirical analysis of 113 public C hinese companies that voluntarily disclosed and audited their internal control reports confirmed our hypotheses. Contribution to the literature, practical implications, and limitations are also discussed.