Board Independence and Internal Control Weakness : Evidence from SOX 404 Disclosures

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

13 Scopus Citations
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Author(s)

  • Yangyang Chen
  • W. Robert Knechel
  • Vijaya B Marisetty
  • Cameron Truong
  • Madhu Veeraraghavan

Detail(s)

Original languageEnglish
Pages (from-to)45-62
Journal / PublicationAuditing: A Journal of Practice & Theory
Volume36
Issue number2
Online publishedSep 2016
Publication statusPublished - May 2017
Externally publishedYes

Abstract

In this paper, we investigate whether board independence has an impact on the likelihood that a company reports weaknesses in internal controls. Using a sample of 11,226 firm-year observations spanning the period 2004–2012, we establish several findings. First, we document a negative relation between board independence and the disclosure of internal control weaknesses. We also document that the negative relation is stronger for firms with unitary leadership (combined positions of CEO and chairman) than for firms with dual leadership. Next, we show that board independence is associated with both fewer account-specific and company-level weaknesses. Finally, we show that board independence is associated with timely remediation of internal control weaknesses and that the implementation of Auditing Standard No. 5 in 2007 weakens the effect of board independence on the disclosure of ICW.

Research Area(s)

  • internal control weakness, board independence, unitary versus dual leadership, SOX 404

Citation Format(s)

Board Independence and Internal Control Weakness : Evidence from SOX 404 Disclosures. / Chen, Yangyang; Knechel, W. Robert ; Marisetty, Vijaya B ; Truong, Cameron ; Veeraraghavan, Madhu.

In: Auditing: A Journal of Practice & Theory, Vol. 36, No. 2, 05.2017, p. 45-62.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review