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Are the regulatory reforms working?

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Date Issued:
2011
Summary:
The Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit committee members' auditor selection process. The study examines whether Audit Committee Members use two specific types of audit quality indicators, other than managers' recommendation, in evaluating auditors. In a setting where the manager recommends the auditor, the auditors' inspection results (favorable/unfavorable) and a prior manager/auditor affiliation (absent/present) are manipulated in a between-subject research design, using financially literate professionals as a proxy for audit committee members. The study finds that audit quality perception and auditor selection are jointly determined. Inspection results are positively associated with audit quality perception and auditor selection. The nature of a manager-auditor affiliation is directly associated with audit quality perception and inversely related to auditor selection. Further, controlling for perception, audit committee members are more likely to recommend auditors with unfavorable inspection results, if a prior affiliation with management is present than if an affiliation is absent. Overall, the results indicate that audit committee members are diligent in evaluating auditors, and PCAOB inspection results are useful. The results of this study contribute to the audit committee effectiveness and PCAOB literature.
Title: Are the regulatory reforms working?: evidence from audit committee members' selection of auditors.
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Name(s): Looknanan-Brown, Veena.
College of Business
School of Accounting
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Issued: 2011
Publisher: Florida Atlantic University
Physical Form: electronic
Extent: xi, 130 p. : ill.
Language(s): English
Summary: The Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit committee members' auditor selection process. The study examines whether Audit Committee Members use two specific types of audit quality indicators, other than managers' recommendation, in evaluating auditors. In a setting where the manager recommends the auditor, the auditors' inspection results (favorable/unfavorable) and a prior manager/auditor affiliation (absent/present) are manipulated in a between-subject research design, using financially literate professionals as a proxy for audit committee members. The study finds that audit quality perception and auditor selection are jointly determined. Inspection results are positively associated with audit quality perception and auditor selection. The nature of a manager-auditor affiliation is directly associated with audit quality perception and inversely related to auditor selection. Further, controlling for perception, audit committee members are more likely to recommend auditors with unfavorable inspection results, if a prior affiliation with management is present than if an affiliation is absent. Overall, the results indicate that audit committee members are diligent in evaluating auditors, and PCAOB inspection results are useful. The results of this study contribute to the audit committee effectiveness and PCAOB literature.
Identifier: 756920317 (oclc), 3318671 (digitool), FADT3318671 (IID), fau:3722 (fedora)
Note(s): by Veena Looknanan-Brown.
Thesis (Ph.D.)-Florida Atlantic University, 2011.
Includes bibliography.
Electronic reproduction. Boca Raton, Fla., 2011. Mode of access: World Wide Web.
Subject(s): Public Company Accounting Oversight Board.
Financial services industry -- Management
Financial institutions -- Law and legislation -- United States
Corporate governance -- Law and legislation -- United States
Auditing -- Standards -- United States
Corporations -- Auditing -- Standards -- United States
Persistent Link to This Record: http://purl.flvc.org/FAU/3318671
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Owner Institution: FAU