Audit Committee Quality, Auditor Independence, and Internal Control Weaknesses

Posted: 19 Oct 2006

See all articles by Yan Zhang

Yan Zhang

State University of New York at Binghamton - School of Management

Jian Zhou

University of Hawaii at Manoa

Nan Zhou

University of Cincinnati - Lindner College of Business

Multiple version iconThere are 2 versions of this paper

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: Internal control weakness, Audit committee, Financial expertise, Auditor independence

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. Journal of Accounting and Public Policy, Vol. 26, No. 3, pp. 300-327, May/June 2007. Available at SSRN: https://ssrn.com/abstract=938196

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

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States

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