Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes

50 Pages Posted: 29 Dec 2006 Last revised: 5 Dec 2012

Udi Hoitash

Northeastern University - Accounting Group

Rani Hoitash

Bentley University - Department of Accountancy

Jean C. Bedard

Bentley University - Department of Accountancy

Date Written: November 1, 2008

Abstract

This study examines the association between corporate governance and disclosures of material weaknesses (MW) in internal control over financial reporting. We study this association using MW reported under Sarbanes-Oxley Sections 302 and 404, deriving data on audit committee financial expertise from automated parsing of member qualifications from their biographies. We find that a lower likelihood of disclosing Section 404 MW is associated with relatively more audit committee members having accounting and supervisory experience, as well as board strength. Further, the nature of MW varies with the type of experience. However, these associations are not detectable using Section 302 reports. We also find that MW disclosure is associated with designating a financial expert without accounting experience, or designating multiple financial experts. We conclude that board and audit committee characteristics are associated with internal control quality. However, this association is only observable under the more stringent requirements of Section 404.

Keywords: Internal controls, corporate governance, audit committee, financial expertise

JEL Classification: G34, G38, M41, M43, M49

Suggested Citation

Hoitash, Udi and Hoitash, Rani and Bedard, Jean C., Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes (November 1, 2008). Accounting Review, Vol. 84, No. 3, p. 839, 2009. Available at SSRN: https://ssrn.com/abstract=954057

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Rani Hoitash

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

Jean C. Bedard (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

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