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  • The Auditing Section
    Corporate Board Governance and Voluntary Disclosure of...
    research summary posted May 7, 2012 by The Auditing Section, tagged 13.0 Governance, 13.05 Board/Audit Committee Oversight in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Corporate Board Governance and Voluntary Disclosure of Executive Compensation Practices
    Practical Implications:

    Consistent with prior corporate governance research, this study concludes that more independent boards of directors are associated with better shareholder representation in disagreements with management.  Moreover, the results highlight the importance of the board governance process for effective decision making. This study documents that having less time to meet as a group and having fewer directors serving on the board can lead to reduced transparency. Frequent board meetings would facilitate greater information sharing among directors and more directors serving on boards would allow better workload distribution and committee assignments.

    Citation:

    Laksmana, I. 2008. Corporate board governance and voluntary disclosure of executive compensation practices.  Contemporary Accounting Research 25 (4): 1147-1182.

    Keywords:
    Board of directors, corporate governance, executive compensation, voluntary disclosure
    Purpose of the Study:

    Recent corporate scandals focused considerable public attention on the role of boards of directors in corporate governance. The purpose of this study is to assess whether higher quality boards voluntarily disclose more information about their compensation practices. The U.S. SEC requires a report justifying the compensation policies, but does not specify the items to be disclosed or the reporting format to be followed. Compensation-related disclosures are particularly important because boards of directors have a responsibility to report the basis of their actions for determining executive compensation in the companies’ proxy statements.

    Unlike other disclosure studies, the present study examines disclosures as the outcomes of board decisions rather than the assumed effect of boards on management decisions. Below are the two primary objectives that the author addresses in this study:

    • Examine whether boards of directors’ time and resource commitments are associated with the extent of compensation practice disclosures.
    • Examine whether more independent boards and compensation committees are more likely to make objective decisions by supporting greater disclosures.
    Design/Method/ Approach:

    This study selects publicly traded firms in nonregulated industries listed on the Standard & Poor’s (S&P) 500 as of December 31, 1992. The author examines the compensation disclosures in proxy statements of those firms filed in 1993 and in 2002. 

    Findings:
    • Boards reported more compensation-related disclosures in 2002 (most recent year) than they did in 1993 (first response to new SEC rules). 
    • More independent boards and compensation committees have more transparent compensation practice disclosures.
    • Meeting frequency and board size are both important factors for increased compensation disclosures.  The board/committee must be of adequate size to distribute workload and meet frequently enough to make decisions. 
    Category:
    Governance
    Sub-category:
    Board/Audit Committee Oversight
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  • The Auditing Section
    Discussion of “Internal Audit Sourcing Arrangement and the E...
    research summary posted May 7, 2012 by The Auditing Section, tagged 07.0 Internal Control, 07.01 Scope of Testing, 13.0 Governance, 13.07 Internal auditor role and involvement in controls and reporting in Auditing Section Research Summary Database > Auditing Section Research Summaries Space public
    Title:
    Discussion of “Internal Audit Sourcing Arrangement and the External Auditor’s Reliance Decision”
    Practical Implications:

    The points noted below suggest some limitations in Glover, Prawitt & Wood (2008) article. However, Messier acknowledges that the article provides insight on some factors that might affect the external auditors’ reliance decisions under AS 5.

    Citation:

    Messier, W. F. 2008. Internal Audit Sourcing Arrangement and the External Auditor’s Reliance Decision. Contemporary Accounting Research 25 (1) 215-218.

    Purpose of the Study:

    This is a discussion of the Glover et al. article (2008). The comments are based on Messier’s comments provided during the 2006 Contemporary Accounting Research Conference.

    Findings:
    • Glover, Prawitt, & Wood (2008) used a first-year audit scenario for their experiment. Messier suggests that auditors are more conservative in first-year audits. This conservative nature may have caused the auditors (participants) to assess the internal audit work as relatively low in terms of reliability. 
    • Messier suggests that the evaluation of “task subjectivity” may be confounded with the auditors’ consideration of the type of work performed, in accordance with SAS No. 65. (The “objective task” was control testing; the “subjective task” was inventory valuation.) This may limit the implications for the findings related to task objectivity/subjectivity, noted above.
    Category:
    Internal Control, Governance
    Sub-category:
    Scope of Testing, Internal auditor role and involvement in controls and reporting
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