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Reporting Internal Control Deficiencies in the Post‐Sarbanes‐Oxley Era: The Role of Auditors and Corporate Governance
Author(s) -
Krishnan Gopal V.,
Visvanathan Gnanakumar
Publication year - 2007
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/j.1099-1123.2007.00358.x
Subject(s) - accounting , corporate governance , business , audit , internal audit , profitability index , internal control , sarbanes–oxley act , audit committee , control (management) , strengths and weaknesses , variety (cybernetics) , control environment , chief audit executive , joint audit , finance , economics , management , psychology , social psychology , artificial intelligence , computer science
This study addresses the role of audit committees and auditors in the reporting of internal control deficiencies after the passage of the Sarbanes‐Oxley Act (SOX). We find that a higher number of meetings of the audit committee, lesser proportion of ‘financial experts’ in the audit committee, and more auditor changes characterize firms that report weaknesses in their internal controls compared to firms with no weaknesses. Prior restatements of financial statements are also higher for firms that report weaknesses in internal controls. These results obtain after controlling for a variety of firm characteristics such as complexity of operations, profitability, and growth. Our results underscore the importance of governance characteristics beyond general firm characteristics in examining the reporting of internal control weaknesses.