Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Board Independence and Internal Control Weakness: Evidence...
    research summary posted June 22, 2017 by Jennifer M Mueller-Phillips, tagged 01.04 Impact of 404, 07.03 Reporting Material Weaknesses, 13.01 Board/Audit Committee Composition 
    Title:
    Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures
    Practical Implications:

    This study examines the effects on internal control weaknesses associated with an independent board of directors. A benefit of having an independent board is the timely remediation of ICWs. This is of high importance because the quicker a material weakness is resolved, the sooner a company can return to normal operations. Another contribution of this study is the discovery of implications regarding Auditing Standard No. 5. The standard changed internal control evaluation to become more holistic and less detailed. This provides the board of directors less tangible information on the status of internal controls.

    Citation:

    Chen, Yangyang, Robert. W. Kechel., V. B. Marisetty, C. Truong, and M. Veeraraghavan.2017. Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures. Auditing, A Journal of Practice and Theory 36(21): 45-62.

    Home:

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  • Jennifer M Mueller-Phillips
    Board Interlocks and Earnings Management Contagion.
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.06 Earnings Management, 12.0 Accountants’ Reports and Reporting, 12.03 Restatements, 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.05 Board/Audit Committee Oversight 
    Title:
    Board Interlocks and Earnings Management Contagion.
    Practical Implications:

    The evidence on the firm-to-firm spread of financial reporting behavior via board networks contributes to a little-studied area in accounting that should be important. The authors contribute to the corporate governance literature by offering evidence that contagion effects vary with board positions. They show that board supervision of management is important for ensuring high-quality financial reporting and that board linkages affect the success of this supervision. Regulators concerned about improving financial reporting quality should consider the board connectivity of companies.

    Citation:

    Chiu, P. C., S. H. Teoh, and F. Tian. 2013. Board Interlocks and Earnings Management Contagion. Accounting Review 88 (3): 915-944.

  • Jennifer M Mueller-Phillips
    Chief Financial Officers as Inside Directors.
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 14.0 Corporate Matters, 14.06 CFO Tenure and Experience 
    Title:
    Chief Financial Officers as Inside Directors.
    Practical Implications:

    These results have implications for boards when deciding on the appointment or replacement of insiders to the board. Specifically, since only a few non-CEO executives can be granted a board seat, the board should carefully consider which executive would enhance the effectiveness of the board. The results demonstrate that the CFO can enhance board effectiveness with respect to the quality of the financial reports. Yet, the results also show that CFOs who serve on the board are more entrenched. Therefore, boards should carefully consider whether the benefits of appointing the CFO to their board outweigh the costs.

    Citation:

    Bedard, J. C., Hoitash, R., and Hoitash, U. 2014. Chief Financial Officers as Inside Directors. Contemporary Accounting Research 31 (3): 787-817.

  • Jennifer M Mueller-Phillips
    Busyness, Expertise, and Financial Reporting Quality of...
    research summary posted July 20, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.02 Board/Financial Experts, 13.05 Board/Audit Committee Oversight 
    Title:
    Busyness, Expertise, and Financial Reporting Quality of Audit Committee Chairs and Financial Experts
    Practical Implications:

    This research makes important contributions to understanding the factors associated with audit committee monitoring effectiveness in the post-SOX period. This study provides additional support for already existing research that both busy audit committee chairs and busy audit committee financial experts may result in overall lower financial reporting quality. These results are important for firms to consider in order to understand how the effectiveness of the audit committee can be affected by these key roles.

    For more information on this study, please contact Paul Tanyi.

    Citation:

    Tanyi, P. N. and D. B. Smith. 2015. Busyness, expertise, and financial reporting quality of audit committee chairs and financial experts. Auditing: A Journal of Practice and Theory 34 (2): 59-89.

  • Jennifer M Mueller-Phillips
    The Nominating Committee Process: A Qualitative Examination...
    research summary posted July 17, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.06 Board/Audit Committee Processes 
    Title:
    The Nominating Committee Process: A Qualitative Examination of Board Independence and Formalization.
    Practical Implications:

    The overall message of the interviews perhaps is best captured by one interviewee, who described a “strange little dance.” Throughout the interviews, the authors find evidence that the NC must “dance” through a complex decision landscape that includes potential CEO influence over the nomination process, consideration of formal versus informal processes, frequent previous ties between NC members and the CEO, a nearly pervasive focus on chemistry and comfort, and concerns about external legitimacy and board effectiveness. Such complexity offers the NC numerous opportunities to stumble or fall, and it demonstrates the need for multiple theoretical perspectives in interpreting the findings. Such complexity, or limited observability of NC-related outputs, also could serve to insulate the NC from scrutiny or regulation.

    Citation:

    Clune, R., Hermanson, D. R., Tompkins, J. G., & Ye, Z. 2014. The Nominating Committee Process: A Qualitative Examination of Board Independence and Formalization. Contemporary Accounting Research 31 (3): 748-786.

  • Jennifer M Mueller-Phillips
    Market Reactions to Departures of Audit Committee Directors
    research summary posted February 16, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.03 Board/Audit Committee Tenure 
    Title:
    Market Reactions to Departures of Audit Committee Directors
    Practical Implications:

    The evidence indicates that the market values the presence of audit committee financial experts who have previous accounting experience on the board and reacts negatively if such directors leave the company. Furthermore, the results indicate a negative stock market reaction when a short-tenured audit committee director leaves the board. Departures of audit committee members could be early warning signals for larger problems in the long run.

    For more information on this study, please contact Meghna Singhvi (Meghna.Singhvi@LMU.EDU)

    Citation:

    Singhvi, M., D.V. Rama and A. Barua. 2013. Market reactions to departures of audit committee directors. Accounting Horizons 27(1): 113-128

  • Jennifer M Mueller-Phillips
    An Empirical Analysis of the Effects of Accounting Expertise...
    research summary posted December 1, 2014 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.02 Board/Financial Experts 
    Title:
    An Empirical Analysis of the Effects of Accounting Expertise in Audit Committees on Non-GAAP Earnings Exclusions
    Practical Implications:

    Given the Public Company Accounting Oversight Board’s (PCAOB) current proposal for auditors to provide assurance on non-GAAP information or earnings releases, the results of this study are important for regulators and boards of directors in their evaluation of the desirable attributes for audit committee financial experts. This study suggests that the audit committee financial expert designation is likely best held by a director who brings to the table more than just supervisory experience over the financial reporting function; lessons gained from actually performing financial accounting functions seem to enhance the audit committee’s ability to monitor management’s non-GAAP financial measures and rationale for excluding charges as infrequent, unusual or nonrecurring.

    For more information on this study, please contact Xu (Frank) Wang.

    Citation:

    Seetharaman, A., X. Wang, and S. Zhang. 2014. An Empirical Analysis of the Effects of Accounting Expertise in Audit Committees on Non-GAAP Earnings Exclusions. Accounting Horizons 28(1): 17-37.

  • Jennifer M Mueller-Phillips
    The Audit Committee: Management Watchdog or Personal Friend...
    research summary posted November 17, 2014 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.05 Board/Audit Committee Oversight 
    Title:
    The Audit Committee: Management Watchdog or Personal Friend of the CEO?
    Practical Implications:

    The results of this study shed light on some unanticipated effects of the SOX mandate for “independent” audit committee members. While the growth in board and audit committee size that followed this mandate has led to improvements in audit committee expertise, CEOs might still appoint or maintain directors from their personal network of friends to build an audit committee that is sympathetic to their reporting choices.

    Furthermore, the evidence is informative for shareholders, nomination and governance committees. Such parties might refrain from appointing a director in the audit committee who is too closely connected to the CEO. Additionally, it may be important to require more disclosure about the nature and type of social connections between audit committee members and the CEO.

    For more information on this study, please contact Liesbeth Bruynseels.

    Citation:

    Bruynseels, L. and E. Cardinaels. 2014. The Audit Committee: Management Watchdog or Personal Friend of the CEO? The Accounting Review 89 (1): 113-145.

  • Jennifer M Mueller-Phillips
    Voluntary Adoption of More Stringent Governance Policy on...
    research summary posted November 12, 2014 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Voluntary Adoption of More Stringent Governance Policy on Audit Committees: Theory and Empirical Evidence
    Practical Implications:

    The findings in this study have important policy and practical implications. First, the study provides empirical evidence that firms have incentives to adopt more stringent governance mechanisms voluntarily if doing so is beneficial. The OSC Policy to exempt smaller issues is both effective and efficient in that it encourages the voluntary adoption and it avoids imposing unnecessary compliance costs associated with a one-size-fits-all mandatory compliance policy. Second, the findings in this study provide strong evidence that adopting more stringent audit committees can generate tangible economic benefits in the form of increased firm valuation, lower cost of capital, and improved investment efficiency. It appears that managers in some TSX listed firms may have overlooked these benefits and did not adopt the more stringent audit committee voluntarily before the mandatory adoption date. Finally, the findings in this study provide corroborating evidence that fully independent and financially literature audit committees are more effective than the less stringent ones in monitoring firm investments and in enhancing the quality of accounting information, as implied in our findings. Investors and policy makers should advocate the adoption of more stringent audit committees.

    For more information on this study, please contact either Feng Chen or Yue Li.

    Citation:

    Chen, F., and Y. Li. 2013. Voluntary Adoption of More Stringent Governance Policy on Audit Committees: Theory and Empirical Evidence. The Accounting Review 88 (6): 1939-1969.

  • Jennifer M Mueller-Phillips
    The Effect of Audit Committee Industry Expertise on...
    research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition 
    Title:
    The Effect of Audit Committee Industry Expertise on Monitoring the Financial Reporting Process
    Practical Implications:

    The findings indicate that audit committee members who have industry knowledge enhance financial reporting quality and external audit oversight beyond what is provided by members with only financial expertise. Therefore, standard setters and regulators such as the SEC should consider revisiting this issue and recommend that audit committees include member(s) who possess a combination of industry specific knowledge and financial expertise. Finally, since companies commonly have members with industry experience on their boards, they should consider appointing these members to serve on the audit committee.

    For more information on this study, please contact Jeffrey Cohen.

    Citation:

    Cohen, J., Hoitash, U., Krishnamoorthy, G., and Wright. 2014. The Effect of Audit Committee Industry Expertise on Monitoring the Financial Reporting Process. The Accounting Review (January): 243-273

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