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Audit Committee Quality, Auditor Independence, and Internal Control Weaknesses

39 Pages Posted: 22 Aug 2006  

Yan Zhang

State University of New York at Binghamton - School of Management

Jian Zhou

University of Hawaii at Manoa

Nan Zhou

State University of New York at Binghamton - School of Management

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Date Written: 2006

Abstract

In this paper we investigate the relation between audit committee quality, auditor independence, and the disclosure of internal control weaknesses after the enactment of the Sarbanes-Oxley Act. We begin with a sample of firms with internal control weaknesses and, based on industry, size, and performance, match these firms to a sample of control firms without internal control weaknesses. Our conditional logit analyses indicate that a relation exists between audit committee quality, auditor independence, and internal control weaknesses. Firms are more likely to be identified with an internal control weakness, if their audit committees have less financial expertise or, more specifically, have both less accounting financial expertise and non-accounting financial expertise. They are also more likely to be identified with an internal control weakness, if their auditors are more independent. In addition, firms with recent auditor changes are more likely to have internal control weaknesses.

Keywords: audit committee financial expertise, auditor independence, internal control weakness

JEL Classification: M41, M49, G34, G38

Suggested Citation

Zhang, Yan and Zhou, Jian and Zhou, Nan, Audit Committee Quality, Auditor Independence, and Internal Control Weaknesses (2006). Available at SSRN: https://ssrn.com/abstract=925732 or http://dx.doi.org/10.2139/ssrn.925732

Yan Zhang

State University of New York at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-6195 (Phone)
607-777-4422 (Fax)

Jian Zhou (Contact Author)

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

Nan Zhou

State University of New York at Binghamton - School of Management ( email )

P.O. Box 6000
Binghamton, NY 13902-6000
United States
607-777-2401 (Phone)

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