Internal control material weakness and CEO recruitment

2021 ◽  
Author(s):  
Inder K. Khurana ◽  
Hoyoun Kyung
Keyword(s):  
Internal Control ◽  
Control Material ◽  
Material Weakness

SOX Section 404 Material Weakness Disclosures and Audit Fees

2006 ◽  
Vol 25 (1) ◽  
pp. 99-114 ◽  
Author(s):  
K. Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Fees ◽  
Internal Controls ◽  
Fiscal Year ◽  
Section 404 ◽  
Control Material ◽  
Material Weakness ◽  
Sarbanes Oxley ◽  
The Mean

Section 404 of the Sarbanes-Oxley Act and Auditing Standard No. 2 (PCAOB 2004) require management and the auditor to report on internal controls over financial reporting. Section 404 is arguably the most controversial element of SOX, and much of the debate around the costs of implementing section 404 has focused on auditors' fees (Ernst & Young 2005). In this paper, we examine the association between audit fees and internal control disclosures made pursuant to section 404. Our sample includes 660 manufacturing firms that have a December 31, 2004 fiscal year-end and filed the section 404 report by May 15, 2005. We find that the mean (median) audit fees for the firms in our sample for fiscal 2004 is 86 (128) percent higher than the corresponding fees for fiscal 2003. Audit fees for fiscal 2004 are 43 percent higher for clients with a material weakness disclosure compared to clients without such disclosure; however, audit fees for fiscal 2003 are not associated with an internal control material weakness disclosure (in the 10-K filed following fiscal 2004). We also find that the association between audit fees and the presence of a material weakness disclosure does not vary depending on the type of material weakness (systemic or non-systemic).

Industry contagion effects of internal control material weakness disclosures

2016 ◽  
Vol 34 ◽  
pp. 27-40 ◽  
Author(s):  
Brian Bolton ◽  
Qin Lian ◽  
Kathleen Rupley ◽  
Jing Zhao
Keyword(s):  
Internal Control ◽  
Control Material ◽  
Material Weakness ◽  
Contagion Effects

How Do Audit Seniors Respond to Heightened Fraud Risk?

2011 ◽  
Vol 30 (3) ◽  
pp. 81-101 ◽  
Author(s):  
Jacqueline S. Hammersley ◽  
Karla M. Johnstone ◽  
Kathryn Kadous
Keyword(s):  
Risk Factors ◽  
Internal Control ◽  
Fraud Detection ◽  
Program Quality ◽  
High Quality ◽  
Control Material ◽  
Material Weakness ◽  
Quality Audit ◽  
Fraud Risk ◽  
Audit Program

SUMMARY This paper describes how audit seniors modify a standard audit program in response to heightened fraud risk when cues allow formation of specific hypotheses about the nature of the fraud. We conduct an experiment in which we manipulate provision of information about an internal control material weakness. We find that when fraud risk is heightened by provision of material weakness information, audit seniors' programs are of lower quality. This occurs because these auditors tend to propose audit program modifications that are not effective in detecting the fraud, resulting in programs that are less efficient. We also investigate determinants of higher-quality audit programs, finding that program quality increases as auditors identify more risk factors focused on the specific fraud. These results suggest that identifying risk factors focused on the fraud area is critical to the development of high-quality audit plans, and thus to fraud detection.

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