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Reporting Internal Control Deficiencies in the Post-Sarbanes-Oxley Era: The Role of Auditors and Corporate Governance

37 Pages Posted: 11 Jan 2005  

Gopal V. Krishnan

Bentley University

Gnanakumar Visvanathan

George Mason University - Accounting Program

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

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 not reporting such weaknesses. The results are robust to 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.

Keywords: SOX, Internal Control, Audit Committee, Financial Expert, Section 404

JEL Classification: G34, M41, M49, G38

Suggested Citation

Krishnan, Gopal V. and Visvanathan, Gnanakumar, Reporting Internal Control Deficiencies in the Post-Sarbanes-Oxley Era: The Role of Auditors and Corporate Governance (October 2005). Available at SSRN: https://ssrn.com/abstract=646925 or http://dx.doi.org/10.2139/ssrn.646925

Gopal Krishnan (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Gnanakumar Visvanathan

George Mason University - Accounting Program ( email )

Fairfax, VA
United States
703-993-4236 (Phone)

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