scholarly journals The Effects of Manager-Auditor Affiliation and PCAOB Inspection Reports on Audit Committee Members' Auditor Selection

2016 ◽  
Vol 11 (1) ◽  
pp. P1-P10 ◽  
Author(s):  
Veena L. Brown
Keyword(s):  
Audit Committee ◽  
Auditor Independence ◽  
Audit Committees ◽  
Public Companies ◽  
Sarbanes Oxley ◽  
Management Measures ◽  
Selection Decisions ◽  
Public Company ◽  
Selection Decision ◽  
Auditor Selection

SUMMARY This article summarizes the “The Effects of Prior Manager-Auditor Affiliation and PCAOB Inspection Reports on Audit Committee Members' Auditor Recommendations” (Abbott, Brown, and Higgs 2016), who investigate the extent to which audit committee members (ACM) of small public companies consider auditors' Public Company Accounting Oversight Board (PCAOB) inspection reports and/or the auditors' prior affiliation with management in their auditor hiring decisions. The authors find participants (the study's proxy for ACM) incorporate the inspection report, as well as the auditor's prior affiliation with management into their selection decision. Specifically, an auditor's prior affiliation with management negatively impacts his/her chances of being selected by the audit committee. To the extent inspection results measure auditors' competence and prior affiliation with management measures auditor independence, the authors find auditor independence influences auditor selection decisions only when an auditor is deemed competent. In this paper, I discuss the implications of Abbott et al.'s (2016) findings for auditors, public companies, audit committees, and regulators/policymakers interested in understanding whether and how major aspects of the Sarbanes-Oxley Act of 2002 are being implemented within corporate governance.

The Effects of Prior Manager-Auditor Affiliation and PCAOB Inspection Reports on Audit Committee Members' Auditor Recommendations

2015 ◽  
Vol 28 (1) ◽  
pp. 1-14 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Veena L. Brown ◽  
Julia L. Higgs
Keyword(s):  
Audit Committee ◽  
Likert Scale ◽  
Auditor Independence ◽  
Publicly Traded ◽  
Publicly Traded Companies ◽  
Sarbanes Oxley ◽  
Selection Decisions ◽  
Public Company ◽  
Auditor Selection ◽  
One Year

ABSTRACT This study investigates (1) the extent to which audit committee members (ACM) of small publicly traded companies utilize Public Company Accounting Oversight Board (PCAOB) inspection reports in their auditor selection recommendations when management recommends hiring the auditor, and (2) whether the Sarbanes-Oxley Act's mandated one-year cooling-off period mitigates independence concerns of ACM resulting from a prior management-auditor affiliation in the same auditor selection context. We use financially literate professional participants as proxies for ACM who make a Likert-scale based recommendation for hiring the auditor. Our study manipulates a hypothetical, triennially inspected auditor's inspection results (favorable/unfavorable) as an auditor competence indicator and a prior management-auditor affiliation (present/absent) as an auditor independence indicator. We document that participants incorporate the inspection results into their selection recommendations, that prior affiliation negatively impacts ACMs' selection recommendations, and that auditor independence effects are contingent upon auditor competence. More specifically, auditor independence impacts auditor selection decisions only when auditor competence is favorable.

scholarly journals What Drives Auditor Selection?

2014 ◽  
Vol 8 (1) ◽  
pp. A26-A42 ◽  
Author(s):  
Elizabeth Dreike Almer ◽  
Donna R. Philbrick ◽  
Kathleen Hertz Rupley
Keyword(s):  
Audit Committee ◽  
Selection Process ◽  
Information Source ◽  
Audit Committees ◽  
Policy Makers ◽  
External Auditors ◽  
Public Company ◽  
Selection Decision ◽  
Auditor Selection ◽  
View Management

SUMMARY This study provides evidence on the factors that currently impact audit committee members' selection of external auditors. Using a two-stage approach, we survey and interview public company audit committee members (ACMs), and find evidence that management continues to provide input into the decision process even as SOX regulations require audit committees to take responsibility for the auditor selection decision. ACMs view management as an important information source when they assess the proposing audit partner's reputation for accessibility, timeliness, and ability to liaise with the firm's national technical office, as well as the proposing audit firm's technical and industry expertise. Results of this study can help firms be more competitive in the audit bidding process, inform policy makers when considering whether to impose further audit committee regulations, and aid academics in ensuring an up-to-date understanding of the audit committee's role in the auditor selection process.

Auditor Independence: A Focus on the SEC Independence Rules

2008 ◽  
Vol 23 (2) ◽  
pp. 247-260 ◽  
Author(s):  
Audrey A. Gramling ◽  
Vassilios Karapanos
Keyword(s):  
Audit Committee ◽  
Financial Statements ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Background Information ◽  
Instructional Resources ◽  
Sarbanes Oxley ◽  
Policy Goals ◽  
Public Company ◽  
Securities Laws

Auditor independence is an important underpinning of the federal securities laws. These laws require that registrants' financial statements filed with the Securities and Exchange Commission (SEC) be audited by independent public accountants. The focus on independence for public company auditors was increased in light of the requirements of the Sarbanes-Oxley Act of 2002 to strengthen auditor independence. These instructional resources provide background information on the current SEC auditor independence rules. After becoming familiar with these rules, you will have the opportunity to complete several case scenarios that address: (1) hypothetical settings that may represent violations of the SEC independence rules, (2) possible actions that an audit committee might take when it determines that the SEC independence rules may have been violated, and (3) possible alternatives to the current SEC independence rules that could achieve the desired public policy goals of objective audits and investor confidence.

Do Former Audit Firm Partners on Audit Committees Procure Greater Nonaudit Services from the Auditor?

2012 ◽  
Vol 88 (1) ◽  
pp. 297-326 ◽  
Author(s):  
Vic Naiker ◽  
Divesh S. Sharma ◽  
Vineeta D. Sharma
Keyword(s):  
Audit Committee ◽  
Auditor Independence ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Audit Committees ◽  
Future Research ◽  
Corporate Boards ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Nonaudit Services

ABSTRACT: To address potential threats to auditor independence, the Sarbanes-Oxley Act of 2002 (SOX) requires the audit committee to pre-approve nonaudit services (NAS) procured from the auditor. However, the presence of a former audit firm partner (FAP) affiliated with the current auditor on the audit committee could undermine the audit committee's due diligence over the NAS pre-approval process. To alleviate such concerns, the Securities and Exchange Commission approved a three-year “cooling-off” period for appointing audit firm alumni as independent directors. Our analyses show that the presence of both affiliated and unaffiliated FAPs on audit committees does not lead to greater NAS procured from the auditor; rather, FAPs reduce NAS procured from the auditor. Moreover, NAS decline significantly following the appointment of FAPs to the audit committee. Further tests suggest the three-year cooling-off period may not be warranted and deserves further investigation. Our study raises important implications for regulators, policy makers, corporate boards, and future research. Data Availability: Data are publicly available from sources identified in the text.

Audit Committee Member Support for Proposed Audit Adjustments: Pre-SOX versus Post-SOX Judgments

2008 ◽  
Vol 27 (1) ◽  
pp. 85-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Dana R. Hermanson ◽  
Richard W. Houston
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Committee Member ◽  
Audit Committees ◽  
Future Research ◽  
Reporting Accuracy ◽  
Sarbanes Oxley ◽  
Public Company

This study examines differences in audit committee member judgments before the Sarbanes-Oxley Act (“pre-SOX”) versus after the act was passed (“post-SOX”) as well as audit committee member perceptions of the effects of SOX. Based on experimental materials administered to 372 public company audit committee members (131 pre-SOX from DeZoort et al. [2003a] and 241 post-SOX), we find that audit committee support for an auditor-proposed adjustment is significantly higher in the post-SOX period. Additional analyses reveal that the effect of SOX differs between audit committee members who are CPAs versus non-CPAs. Specifically, the greater audit committee member support for the proposed adjustment post-SOX is attributable to members who are CPAs. In general, audit committee members in the post-SOX period feel more responsible for resolving the accounting issue, perceive that audit committee members have greater expertise to evaluate the accounting issue, and also are more concerned with reporting accuracy and a need for conservative financial reporting than those in the pre-SOX period. We also find that post-SOX respondents who support the auditor's proposed adjustment have more favorable views of the benefits of SOX, and they believe more strongly that audit committees in the post-SOX period are more conservative and have more power than they did pre-SOX. We discuss implications and avenues for future research.

Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

2017 ◽  
Vol 92 (6) ◽  
pp. 187-212 ◽  
Author(s):  
Seil Kim ◽  
April Klein
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Research Question ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Difference In Differences ◽  
Listed Firms ◽  
Sarbanes Oxley ◽  
Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

Under Which Conditions are Whistleblowing “Best Practices” Best?

2013 ◽  
Vol 32 (3) ◽  
pp. 171-181 ◽  
Author(s):  
Jian Zhang ◽  
Kurt Pany ◽  
Philip M. J. Reckers
Keyword(s):  
Best Practices ◽  
Audit Committees ◽  
Behavioral Experiment ◽  
Public Companies ◽  
Anonymous Reporting ◽  
Sarbanes Oxley ◽  
Main Effect ◽  
History Of ◽  
Reporting Channel ◽  
Reporting Intentions

SUMMARY: Public companies are required by the Sarbanes-Oxley Act of 2002 to establish an anonymous reporting (whistleblowing) channel for employee reporting of questionable accounting practices. Corporate audit committees are provided flexibility in implementing this requirement and a controversial choice is the type of reporting channel. Most commentators argue that “best practices” call for an externally administered “hotline.” To examine the efficacy of externally administered versus internally administered channels we conducted a behavioral experiment. Our results reveal a significant main effect with reporting intentions being greater if the hotline is administered externally. We then examine whether this finding is robust across selected environmental and employee-specific conditions and find that it is not. Our results suggest that the primary reporting benefits of an externally administered hotline are for organizations with a history of poor responsiveness to whistleblowing and for employees registering relatively low on the proactivity scale. Specifically, we find that an externally administered hotline obtains higher reporting intentions under conditions wherein a previous incidence of whistleblowing notably failed to achieve a good outcome. Also, this effect is only statistically significant for participants registering as relatively low on a “proactivity” scale.

scholarly journals The More, The Better? A Case History Of Audit Committee Regulations

2013 ◽  
Vol 9 (2) ◽  
pp. 105-110
Author(s):  
Songtao Mo ◽  
Yifan Shi ◽  
Yajing Wang
Keyword(s):  
Corporate Governance ◽  
Critical Thinking ◽  
Case History ◽  
Audit Committee ◽  
Learning Experience ◽  
Audit Committees ◽  
Regulatory Environment ◽  
Regulatory Changes ◽  
Sarbanes Oxley ◽  
History Of

An understanding of changing auditing regulatory environment is vital in preparing students for the challenges in the accounting profession. The revised requirements for audit committees are one of the significant changes after the Sarbanes-Oxley Act of 2002. Presenting a case history of regulatory changes for audit committees, this study requires students to critically analyze information and to conduct research on auditing topics. Meanwhile, integrating further discussion on corporate governance into auditing class can enrich students learning experience by stimulating critical thinking.

scholarly journals The Impact of Audit Committees on US Nonprofit Organizations’ Governance

2020 ◽  
Vol 27 (1) ◽  
pp. 30
Author(s):  
Husam Abu-Khadra
Keyword(s):  
Nonprofit Organizations ◽  
Audit Committee ◽  
Nonprofit Sector ◽  
The United States ◽  
Preliminary Evidence ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Public Companies ◽  
Policy Makers ◽  
The Impact

All public companies in the United States are required by the securities and exchange commission (SEC) to have an audit committee. Such enforcement can be attributed to high-profile corporate failures and their connections to nonexistence, ineffective or weak audit committees and governance. Despite the efforts to establish a similar argument and enforcement structure for the nonprofit sector, the internal revenue service (IRS) has not pursued legislation, and no empirical evidence has been established to support any public policy changes. This paper contributes to the literature in this field by being the first study to examine 124,980 nonprofit organizations during the period of 2010 to 2015 to test the association between governance in nonprofit organizations and audit committees. We included fifteen measures from these organizations’ IRS Form 990 filings to formulate the study variables. We found significant evidence that the existence of audit committees improves the governance scores of nonprofit organizations. Our study findings have significant implications for nonprofit executives, policy makers and any other interested parties; these findings act as preliminary evidence to support more proactive policies regarding mandatory audit committees for nonprofit organizations. 

scholarly journals Is The Pcaob a “Heavily Controlled Component” Of The Sec?: An Essential Question In The Constitutional Controversy

2009 ◽  
Vol 71 (3) ◽  
Author(s):  
Donna M. Nagy
Keyword(s):  
Supreme Court ◽  
Separation Of Powers ◽  
Free Enterprise ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Essential Question ◽  
The U.S

The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, described as “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley” or the “Act”), the Public Company Accounting Oversight Board (the “PCAOB” or the “Board”) was structured as “a strong, independent board to oversee the conduct of the auditors of public companies.” Its principal mission was to prevent the type of auditing failures that contributed to the scandals at Enron, WorldCom, and numerous other public companies in the period leading up to the passage of the Act.

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