The role of audit committees in managing relationships with external auditors after SOX

PurposeRecent US reforms aimed at strengthening audit committees and their structure grant independent audit committees the responsibility to appoint, dismiss, and compensate auditors. The purpose of this paper is to examine the association between audit committee characteristics and auditors' compensation and dismissals following the enactment of the Sarbanes Oxley Act (SOX).Design/methodology/approachA series of linear and logistic regression models were employed in a unique sample comprising of 2,393 observations.FindingsIt was observed that stronger audit committees demand a higher level of assurance and are less likely to dismiss their auditors. Further, an increase was found in auditor independence as measured by reduced board involvement and less dismissals following an unfavorable audit opinion. Overall results suggest that increased audit committee roles and independence after SOX contribute to auditor independence and audit quality.Practical implicationsThis research has implications for regulators, auditors, boards and academics. The paper highlights that although all audit committees had to improve as a result of SOX, the remaining variation in audit committee characteristics continue to be important to the demand for auditor and audit quality.Originality/valueThis study is the first to consider the association between audit committee characteristics and its extended responsibilities after SOX.</jats:sec

A Measure of Firm Complexity: Data and Code

ABSTRACT We propose that firm complexity is best measured with accounting disclosures. Accounting is the “language of business,” and accounting disclosures of most business activities are mandated. Therefore, relying on accounting disclosures is the best approach for consistently capturing a wide range of firm activities for a large cross-section of firms. Measuring firm complexity is important for many applications in research and practice. However, firm complexity is multifaceted, making it difficult to measure. We review past research on complexity and motivate the use of Accounting Reporting Complexity (ARC), proposed by R. Hoitash and U. Hoitash (2018), to measure firm complexity. In so doing, we discuss the advantages of ARC over other measures. We then review studies that use ARC and provide a detailed description and code to construct ARC (and related measures) based on publicly available data. The complete ARC dataset is also available for download at: https://www.xbrlresearch.com/. Data Availability: Data are publicly available from sources identified in the paper. ARC is based on XBRL filings downloaded directly from the Securities and Exchange Commission and is available for download at: https://www.xbrlresearch.com/. JEL Classifications: B40; D20; C10; G10; L25; M40.</jats:p

Should Independent Board Members with Social Ties to Management Disqualify Themselves from Serving on the Board?

CEO compensation, corporate governance, financial reporting quality, independent directors, social network, social ties,