Although the audit committee plays an important role in monitoring internal controls, the board of directors provides incremental oversight on internal controls as part of its fiduciary duties. Management often has self-interested incentives that may not necessarily serve the best interests of shareholders. When internal control deficiencies are detected, management may not be willing to invest time and resources in remediating these deficiencies because such efforts divert attention and resources from the core businesses. Effective audit committees and boards of directors can pressurize management to invest in remediation efforts, resulting in faster remediation of these deficiencies. Hence, I hypothesize a positive association between the effectiveness of the audit committee and the board, and firms’ timeliness in the remediation of internal control deficiencies.
I collect data on 208 unique firms that are accelerated filers and disclosed at least one material weakness (MW) from July 2003 to December 2004 under SOX 302 . I focus on firms that disclose MWs to avoid the self-selection issues associated with the voluntary disclosure of significant deficiencies (Doyle et al. 2007b) . Furthermore, MWs are the most severe type of internal control deficiencies and hence their remediation should be of greater concern to investors and regulators. The sample firms are identified using Compliance Week, AuditAnalytics, and the sample firms used in Doyle et al. (2007b) . I determine firms’ timeliness in the remediation of MWs based on whether the MWs are remediated within the subsequent SOX 404 reports. I measure the effectiveness of the audit committee by its independence, financial expertise, size, and meeting frequency, and the effectiveness of the board by its independence, size, and meeting frequency, and by the duality of the Chief Executive Officer (CEO) and Chairman positions (CEO duality). I also control for other factors that can affect firms’ timeliness in the remediation of MWs, Such as the severity of MWs, firms’ profitability, the complexity of firms’ operations, and so on. An estimation of the ordered logistic regression model yields the following results, which are consistent with my hypotheses. 本文来自辣.文~论^文'网原文请找腾讯324.9114
宾馆客房管理系统论文(概述+数据流图+ER图)First, the proportion of audit committee members with financial expertise is positively associated with firms’ timeliness in the remediation of MWs. However, this result only holds for nonaccounting financial expertise (i.e., expertise gained through experience supervising employees with financial reporting responsibilities and overseeing the performance of companies) but not for accounting financial expertise (i.e., expertise gained through accounting-related experience in SEC reporting). Hence, the ability to effectively supervise and oversee the remediation process is more important than domain-specific expertise in speeding up the remediation of MWs. Second, firms with larger audit committees are more likely to remediate MWs in a timely manner. This result is consistent with the view that a larger audit committee is more likely to question management on remediation efforts and meet with internal control system personnel, which in turn speeds up the remediation of MWs. Third, I find that a more independent board is associated with timelier remediation of MWs, suggesting that a more independent board is less susceptible to the undue influence of management and more likely to exert pressure on management to remediate MWs. Taken together, these results show that the audit committee and the board play an important role in monitoring the remediation of MWs. Finally, the regression results show that firms with more severe MWs, lower profitability, and more complex operations are less likely to remediate MWs in a timely manner.
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