The Association Between Audit Committee Overboarding, Audit Committee Responses to Increased Workloads, and Financial Reporting Quality After SOX

The Association Between Audit Committee Overboarding, Audit Committee Responses to Increased Workloads, and Financial Reporting Quality After SOX
Author: John Kyle Castonguay
Publisher:
Total Pages: 83
Release: 2017
Genre: Audit committees
ISBN:
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The Sarbanes-Oxley Act (SOX) added a multitude of financial oversight responsibilities to the audit committee of public companies. These responsibilities increased the amount of time each audit committee member needed to devote to each committee served, leading to concerns amongst regulators and the investing community that audit committees that were overboarded and serving on multiple other board seats would be unable to effectively monitor the companies they represented. I find that these concerns are undue. More overboarded audit committees have adequately adjusted to their increased workloads in the decade since SOX to such a degree that they have lower misstatement frequencies than less overboarded committees. By contracting in additional auditor effort or retaining higher quality auditors overboarded audit committees have found responses that aid in their monitoring. These responses lead to positive financial reporting outcomes when audit committees accept the limitations imposed by being overboarded. Overall, I find that more overboarded audit committees are able to remain effective monitors of the financial reporting process.

The Long-Run Implications of Audit Committee Overboarding on Auditor Contracting and Financial Reporting Quality

The Long-Run Implications of Audit Committee Overboarding on Auditor Contracting and Financial Reporting Quality
Author: Jack Castonguay
Publisher:
Total Pages: 49
Release: 2019
Genre:
ISBN:
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Since the passage of the Sarbanes-Oxley Act (SOX) there has been a concern amongst regulators and the investing community that overboarded audit committees, those with members holding multiple other board seats, are unable to effectively monitor the companies they represent. I find these concerns unwarranted. Results indicate that more overboarded audit committees have adequately adjusted to their increased workloads in the decade since SOX to such a degree that they have lower misstatement frequencies than less overboarded committees. Initially through contracting with their auditors and later by moving along their own learning curve, more overboarded audit committees have found responses that aid in their monitoring, leading to higher quality financial reporting. Overall, I find that more overboarded audit committees perform effective monitoring despite members serving on multiple other boards. Results suggest that reputational concerns and preserving opportunities for future board nominations outweigh the time constraints associated with being more overboarded.

The Association of Audit Committee Oversight with Corporate Disclosure Quality

The Association of Audit Committee Oversight with Corporate Disclosure Quality
Author: Min-Hsin Carol Liu
Publisher:
Total Pages: 93
Release: 2005
Genre:
ISBN:
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The Securities and Exchange Commission (SEC) and the Sarbanes-Oxley Act of 2002 suggest that the quality of corporate disclosure is higher when audit committees effectively oversee the financial reporting process. I investigate whether audit committees that meet the requirements of the Sarbanes-Oxley Act with respect to members' independence and financial expertise would be associated with higher disclosure quality through lower forecast dispersion, forecast errors, revision volatility, and analysts' underreaction to prior earnings information. I find lower forecast dispersion when all members of the audit committee are independent. In addition, revision volatility and analysts' underreaction are lower when the audit committee is comprised of independent directors, where at least one member is a financial expert. Further, the results reveal that independence is the most critical of those attributes tested, to the effectiveness of audit committees. Overall, the association I document between audit committees and disclosure quality suggests that efforts of the Sarbanes-Oxley Act to strengthen the effectiveness of corporate audit committees may be effective in enhancing the quality of corporate disclosure.

Audit Committee Expertise

Audit Committee Expertise
Author: Brandon Szerwo
Publisher:
Total Pages: 69
Release: 2017
Genre: Accountants
ISBN:
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I examine whether accounting experts on the audit committee outperform other financial experts in monitoring financial reporting in the post-SOX era. SOX changed both the audit committee composition and financial reporting quality, indicating that prior findings of the association between accounting expertise and financial reporting quality from the pre-SOX and SOX implementation eras may not generalize to periods after SOX implementation. I find, in the post-SOX era, that accounting experts fail to outperform other financial experts. I then test for the association using former audit partners and they too, even with their high levels of accounting expertise, fail to outperform other financial experts. I further investigate this lack of association by examining how the association varies within expert type, based on when the expert was appointed as an audit committee member. I find that pre-SOX appointment former audit partners are the only group consistently associated with higher financial reporting quality, suggesting that previously identified incremental associations have been diluted by more recently appointed experts. The results suggest that, broadly, regulation aimed at influencing audit committee composition and expertise altered the previously documented relation. Additionally, they suggest that changing the definition of a financial expert to be more accounting focused, as recently requested by some investor advocates, is unlikely to improve financial reporting quality.

Audit Committee Formation in the Aftermath of 2007-2009 Global Financial Crisis, Volume II

Audit Committee Formation in the Aftermath of 2007-2009 Global Financial Crisis, Volume II
Author: Zabihollah Rezaee
Publisher: Business Expert Press
Total Pages: 190
Release: 2016-07-08
Genre: Business & Economics
ISBN: 1631571559
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The audit committee has gained considerable attention in the aftermath of 2007-2009 global financial crisis. The audit committee’s role has evolved from a voluntary liaison between management and external auditors to the standing committee of the board of directors in overseeing all aspects of corporate governance, financial reporting, internal controls, risk assessment, and audit activities. This book addresses the determinants of audit committee oversight effectiveness, including their composition, independence, authority, resources, diligence, and activities. The book is organized into three separate volumes and each volume can be utilized separately or in an integrated form. The first volume consists of five chapters, which examine the relevance and fundamentals of the audit committees as well as the determinants of audit committee effectiveness. The second volume consists of nine chapters on financial, auditing, internal control, risk management, ethics and compliance, antifraud, and other oversight functions of the audit committee. The third volume consists of five chapters on the emerging issues of audit committees pertaining to evaluation, education, reporting, and accountability as well as audit committees of private companies, governmental entities and not-for-profit organizations.

The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements

The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements
Author: Somnath Das
Publisher:
Total Pages: 50
Release: 2020
Genre:
ISBN:
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Using financial restatements as the contextual setting, we examine whether the accounting expertise of board committees affects the consequences of financial reporting quality. We analyze both short-term consequences--stock market reactions surrounding restatement announcements, and long-term consequences--the incidence of SEC Accounting and Auditing Enforcement Actions (AAERs), and CEO and CFO turnover after restatements. Our results show that the presence of audit committee members with accounting expertise moderates the consequences of restatements, resulting in less negative stock market reactions and a lower probability of CEO turnover. In contrast, the audit committee's non-accounting financial expertise increases the likelihood of AAERs. For the compensation committee, we find that accounting expertise reduces the probability of CEO turnover, while non-accounting financial expertise exacerbates the negative stock returns around restatement announcements and increases the probability of AAER. In the post Sarbanes Oxley Act (SOX) period, restatements have resulted in less severe consequences while companies have increased their propensity to hire accounting experts. on the board. Correspondingly, we document that the moderating effects of accounting expertise become less significant, in part because the moderating effects are offset by the changed investor expectations. Overall, our results suggest that accounting expertise of board committees helps mitigate the negative consequences of restatements.

Does the SOX Definition of an Accounting Expert Matter? the Association between Audit Committee Directors' Accounting Expertise and Accounting Conservatism

Does the SOX Definition of an Accounting Expert Matter? the Association between Audit Committee Directors' Accounting Expertise and Accounting Conservatism
Author: Gopal V. Krishnan
Publisher:
Total Pages: 53
Release: 2007
Genre:
ISBN:
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The Sarbanes-Oxley Act mandates the disclosure of whether at least one member of the audit committee is a financial expert. However, the final version of the rule adopted by the SEC defined experts to include both accounting and non-accounting experts. Did the SEC do the right thing? Are the non-accounting experts just as competent as the accounting experts in enhancing the quality of financial reporting? For a sample of Samp;P 500 firms we examine whether the audit committee's financial expertise is associated with accounting conservatism, a fundamental characteristic of financial reporting. Our results suggest that an audit committee's financial expertise is positively associated with conservatism when financial expertise is defined to include only accounting experts. Our findings are consistent with the notion that accounting expertise contributes to greater monitoring by the members of the audit committee which in turn enhances conservatism. However, this finding is conditional upon the firm's overall corporate governance, i.e., in weak boards accounting financial expertise is ineffective in promoting conservative accounting. Our findings have implications for regulators, corporate boards, and the accounting profession. Our findings are also relevant to regulators in other countries who are considering adopting measures to enhance corporate governance, particularly the effectiveness of the audit committees.

Sarbanes-Oxley at Four

Sarbanes-Oxley at Four
Author: United States. Congress. House. Committee on Financial Services
Publisher:
Total Pages: 104
Release: 2007
Genre: Business & Economics
ISBN:
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Essentials of Sarbanes-Oxley

Essentials of Sarbanes-Oxley
Author: Sanjay Anand
Publisher: John Wiley & Sons
Total Pages: 113
Release: 2011-07-05
Genre: Business & Economics
ISBN: 1118160630
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What is the importance of Sections 302 and 404? "Implementing" SOX using COSO and COBIT SOX's impact on foreign companies andnonprofits Achieving cost-effective sustainable compliance The evolving role of the SEC and the PCAOB Praise for ESSENTIALS OF SARBANES-OXLEY "Since its enactment in 2002, the Sarbanes-Oxley Act and its Section 404 internal control requirements have caused many a great deal of 'pain and suffering!' With its emphasis on what Sanjay Anand frequently reminds us is the 'real world,' this book should reduce some of that pain as it provides a practical and very realistic approach for an effective implementation of Sarbanes-Oxley internal control processes. The book has references to the new changes in auditing standards and emphasizes achieving sustainable compliance-practical and realistic approaches." —Robert R. Moeller, President, Compliance & Control Systems, Inc. "Sanjay Anand has provided what every busy executive needs, a concise overview of Sarbanes-Oxley Act essentials. His book is a terrific reference text that I recommend to anyone who needs to quickly understand the substance of the Act." —Scott Green, Chief Administration Officer Weil, Gotshal & Manges LLP "If you are looking to put together the various pieces-finance, accounting, audit, legal, IT, ethics-and understand the 'big picture' of the Sarbanes-Oxley Act, there is no other book like this. With 'Tips & Techniques' and 'In the Real World' examples, this book brings lively, practical, tangible, and compressible dimensions to a complex, multifaceted (and often dry) subject. This is essential reading for those new to the process and old hands going into their third and fourth years of SOX. It will also help those in other countries adopting SOX-like internal controls and regulations." —Dr. Anthony Tarantino, Governance, Risk, and Compliance Center of Excellence, IBM, Financial Services Sector, Silicon Valley and New York City Written by Sanjay Anand, one of the world's leading corporate governance, risk management, and regulatory compliance experts, this simple to use book is designed with appreciation for demanding professional obligations, with information always easy to find and at your fingertips. Essentials of Sarbanes-Oxley equips you with the knowledge you and all your company members need to initiate a SOX project, allocate a budget, and help your company achieve compliance.