Audit Committee: A Summary of the Findings of Some Existing Literature

Hossain, Dewan Mahboob and Khan, Arifur Rahman (2006): Audit Committee: A Summary of the Findings of Some Existing Literature. Published in: The Cost and Management No. 34(5) (1 September 2006): pp. 40-57.

Abstract

This paper attempts to provide a summary of findings of the fast-growing theoretical and empirical literature on audit committee mainly basing on several available articles. Particular emphasis was given on the issues like the conflicts arising from the relationship between managers and shareholders, earnings management, formation of audit committee, auditors’ independence and quality of financial reporting and their relationship with audit committee. The study also aims at exploring the key success factors in the introduction and implementation of audit committees in the corporate world.

• Item Type: MPRA Paper
• Language: English
• Keywords: audit committee, corporate governance
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

References

Abbott, L.J. and S. Parker (2000), “Auditor Selection and Audit Committee Characteristics,” Auditing: A Journal of Practice & Theory, Vol. 19: 47-66.

Abbott, L.J., S. Parker and G.F. Peters (2002), “Audit Committee Characteristics and Financial Misstatement: A Study of the efficacy of certain Blue Ribbon Committee Recommendations,” Working Paper.

AISG (Accountants International Study Group) (1977), Audit Committees: Current Practices in Canada, the United Kingdom and the United States, AISG.

AICPA (American Institute of Certified Public Accountants) (1979), Report on Special Committee on Audit Committees (New York: AICPA).

ALI (American Law Institute) (1992), Principles of Corporate Governance Analysis and Documentation, Washington DC.

Beasley, M.S. (1996), “An Empirical Analysis of the Relation between Board of Director Composition and Financial Statement Fraud,” The Accounting Review, 71(4): 443-465.

Beasley, M.S., Carcello, J.V., Hermanson, D.R. and Lapides, P.D. (2000), “Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms,” Accounting Horizons, 14(4): 441-454.

Bilimoria , D. and S. Piderit (1994), “Board Committee Membership of Sex-based Bias,” Academy of Management of Journal,Vol.37: 1453-1477.

Blue Ribbon Committee (1999), “Report and the Recommendation of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, New York Stock Exchange and National Association of Securities Dealers,” found at www.nyse.com

Bull, I. (1991), “Board of Director Acceptance of Treadway Responsibilities,” Journal of Accountancy, 17(February): 67-74.

Cadbury, A. (Chairman) (1992), Report of the Committee of the Financial Aspects of Corporate Governance (London: Financial Reporting Council, London Stock Exchange).

Carey, J. (1947), “Editorial,” Journal of Accountancy, 85(4), October: 267.

Carcello, J.V. and T.L. Neal (2000), “Audit Committee Characteristics and Auditor Reporting,” The Accounting Review, Vol.75:453-467.

Cobb, L.J. (1993), “An Investigation into the Effect of Selected Audit Committee Characteristics on Fraudulent Financial Reporting,” Doctoral Dissertation, University of South Florida, USA.

Collier, P. and A. Gregory (1996), Audit committee effectiveness and the audit fee, The European Accounting Review, Vol.5,No.2, pp.177-198.

Collier, P. and A. Gregory (1999), Audit committee and agency costs, Journal of Accounting and Public Policy, Vol. 18, pp.311-332

COSO (Committee of Sponsoring Organizations) (1992), Internal Control – Integrated Framework, Committee of Sponsoring Organizations of the Treadway Commission, New York.

Corrin, J. (1993), “A Blatant Slur on Executive Directors’ Integrity,” Accountancy, April: 81-92

Dockweiler, R.C., L.A. Nikolai and J.E. Holstein (1986), “The Effect of Audit Committees and Changes in the Code of Ethics on Public Accounting,” Proceedings, 1986 Midwest Annual Meeting (Sarasota, Florida: American Accounting Association):45-60.

DeFond, M.L. and J. Jiambalvo (1991), “Incidence and Circumstances of Accounting Errors,” The Accounting Review, 66(July):643-655.

DeZoort, F.T., D.R. Hermanson and W.R. Houston (2003), “Audit Committee Support for Auditors: The Effects of Materiality Justification and Accounting Precision,” Journal of Accounting and Public Policy, Vol.22:175-199.

DeZoort, F.T. and S. Salterio (2001), “The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members’ Judgement,” Auditing: A Journal of Practice & Theory, 20(2): 31-47.

Eicheneher, J.W. and D. Sheilds (1985), “Corporate Director Liability and Monitoring Preferences,” Journal of Accounting and Public Policy, 152(2): 13-31.

Fama, E.F. and M.C. Jensen (1983), “Separation of Ownership and Control,” Journal of Law and Economics, 26(2): 301-326.

Firsteinberg, P.B. and B.G. Malkiel (1994), “The Twenty-first Century Boardroom: Who will be in Charge?” Sloan Management Review, 36(1): 27-35.

Goddard, A.R. and C. Masters (2000), “Audit Committees, Cadbury Code and Audit Fees: An Empirical Analysis of UK Companies,” Managerial Auditing Journal, 15/7: 358-371.

George, N. (2003), “Audit Committees: The Solution to the Quality of Financial Reporting?” The CPA Journal, found at www.nysscpa.org/cpajournal/2003/1203.

Huang, H and L. Liu (2005), “The Effects of Audit Committee Characteristics on Investors’ Perception of Financial Reporting,” SSRN Working paper series found in www.ssrn.com.

Jensen, M.C. and W.H Meckling (1976), Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure, Journal of Financial Economics, 3(October): 305-360.

Kalbers, L.P. (1992), “An Examination of the Relationship between Audit Committees and External Auditors,” The Ohio CPA Journal (USA), 51(6): 19-27.

Kalbers, L. and T. Fogarty (1993), “Audit Committee Effectiveness: An Empirical Investigation of the Contribution of the Power,” Auditing: A Journal of Practice and Theory, 12(1): 24-29.

Kinzelle, M.R. (1991), “The Use of Audit Committee Reports in Financial Reporting,” Internal Auditing, 6(Spring): 15-24.

Klein, A. (2002a), “Economic Determinants behind Variations in Audit Committee Independence,” The Accounting Review, Vol. 77: 435–452.

Klein, A. (2002b), “Audit Committee, Board of Director Characteristics, and Earnings Management,” Journal of Accounting and Economics, 33(3): 375-400.

Knapp, M.C. (1987), “An Empirical Study of Audit Committee Support for Auditors Involved in Technical Disputes With Client Management,” The Accounting Review, 62(3): 578-588.

Kuchhal, M.C. (2001), Secretarial Practices (New Delhi: Vikas Publishing House Pvt. Ltd.; 16th Revised Edition).

Kunitake, W. (1983), “Do Audit Committees Favor the Large CPA Firms?” Journal of Accountancy, August: 43.

Lee, T. and M. Stone (1994), “Perceptions of Responsibilities and Membership of Audit Committees of Multinational Enterprises,”Unpublished paper presented at the University of Dundee, UK.

Lynn , S.A. (1985), “Audit Committee in the Review: Their Impact on the CPA Selection Process,” The Ohio CPA Journal, 10(1): 9-16.

Mennon, K. and J. William (1994), “The Use of Audit Committees for Monitoring,” Journal of Accounting and Public Policy,Vol.13: 121-139.

Mangena, M. and R. Pike (2004), “Shareholding of Audit Committee Members, Audit Committee Size and Expertise and the Quality of Interim Financial Reporting,” Working Paper No. 04/25, Bradford University of School of Management.

Metz, M.S. (1993), “Inside the Audit Committee,” Internal Auditor, pp. 42-47.

Monroe, G.S., P. Robinson and S.T. Teh (1994), “The Effect of Audit Committees on the Likelihood of Receiving a Qualified Audit Opinion,” Paper presented in BAA Conference, Winchester, March.

New York Stock Exchange (1973), White Papers (New York: New York Stock Exchange).

Park, Y. (1999), “Corporate Governance, Audit Committees and Auditor Litigation,” Working Paper, University of Illinois, USA.

Pearson, M.A. and J. K. Ryans, Jr. (1982), “Perception of an Auditors - Management Conflict,” Review of Business and Economic Research, Vol.17: 1-10.

Pomeranz, F. (1992), The Successful Audit: New Ways to Reduce Risk Exposure and Increase Efficiency, (New York: Business One Irwin).

Pomeranz, F. (1997), “Audit Committees: Where do we go from here?” Managerial Auditing Journal, 12(6): 281-284.

Pound, J. (1995), “The Promise of the Governed Corporation,” Harvard Business Review, 73(2): 89-98.

Public Oversight Board (POB) of the SEC Practice Section of the AICPA (1993), In the Public Interest: Issues Confronting the Accounting Profession (New York: AICPA).

Reinstein, A. and T.R. Weirich (1996), “Testing for Bias in the Audit Committee,” Managerial Auditing Journal, 11(2): 28-35.

Rezaee, Z., K.O. Olibe and G. Minmier (2003), “Improving Corporate Governance: The Role of Audit Committee Disclosures,”Managerial Auditing Journal, 18/6/7: 530-537.

Schroeder, M.S., I. Solomon and D. Vickery (1986), “Audit Quality: the Perception of Audit Committee Chairpersons and Audit Partners,” Auditing: A Journal of Practice and Theory, 5(2): 88-94.

SEC (Securities & Exchange Commission) (1972), Accounting Series Release, No. 19, USA.

SEC (1978), SEC 1943 Act Release No. 14970, July 18, USA.

Sommer, A.A. (1991), “Auditing Audit Committees: An Educational Opportunities for Auditors,” Accounting Horizon , June:91-93.

Spangler, W.D. and L. Braiotta (1990), “Leadership and Corporate Audit Committee Effectiveness,” Group and Organization Studies, 15(June): 134-157.

Sullivan, N. (2000), “The Impact of Board Composition and Ownership on Audit Quality: Evidence from Large UK Companies,”The British Accounting Review, Vol.32: 397-414.

Ticker, R.I. (1978), The Independent Director: A Study of the Non-Executive Director and the Audit Committee (London: Tolley Publishing Company Ltd.).

Treadway, J.C. (1987), Report of the National Commission on Fraudulent Financial Reporting (Washington DC: National Commission on Fraudulent Financial Reporting). US Securities and Exchange Commission (SEC) (1972), “Standing Audit Committees Composed of Outside Directors,” Accounting Series Release (Washington DC: US Government Printing Office).

Vanasco, R.R. (1994), “The Audit Committee: An International Perspective,” Managerial Auditing Journal, 9(8): 18-42.

Wild, J.J. (1994), “Managerial Accountability to Shareholders: Audit Committees and the Explanatory Power of Earnings for Returns,” British Accounting Review, Vol.26: 353-374.

Whittington, O. R. and K. Pany (2001), Principles of Auditing and Other Assurance Services (Boston: Irwin McGraw-Hill).

Xie, B, W.N. Davidson III and P.J. DaDalt (2001), “Earnings Management and Corporate Governance: The Roles of the Board and Audit Committee,” SSRN, Working paper series found in www.ssrn.com.

Xie, B., W.N. Davidson III and P.J. DaDalt (2003), “Earnings Management and Corporate Governance: The Role of the Board and the Audit Committee,” Journal of Corporate Finance, Vol. 9: 295-316.