Journal ArticleDOI
The Audit Committee: Management Watchdog or Personal Friend of the CEO?
TLDR
This article found that firms whose audit committees have "friendship" ties to the CEO purchase fewer audit services and engage more in earnings management, and that auditors are also less likely to issue going-concern opinions or to report internal control weaknesses when friendship ties are present.Abstract:
To ensure that audit committees provide sufficient oversight over the auditing process and quality of financial reporting, legislators have imposed stricter requirements on the independence of audit committee members. Although many audit committees appear to be “fully” independent, anecdotal evidence suggests that CEOs often appoint directors from their social networks. Based on a 2004 to 2008 sample of U.S.-listed companies after the Sarbanes-Oxley Act we find that these social ties have a negative effect on variables that proxy for oversight quality. In particular, we find that firms whose audit committees have “friendship” ties to the CEO purchase fewer audit services and engage more in earnings management. Auditors are also less likely to issue going-concern opinions or to report internal control weaknesses when friendship ties are present. On the other hand, social ties formed through “advice networks” do not seem to hamper the quality of audit committee oversight.read more
Citations
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It`s Not Who You Know But How You Know Them: Who Exchanges What With Whom?
TL;DR: This paper investigated the extent to which interpersonal ties, network characteristics, and people's personal characteristics (e.g., gender) affect the nature of reciprocal relationships and found that giving support is strongly associated with getting it.
Journal ArticleDOI
Are Boards Designed to Fail? The Implausibility of Effective Board Monitoring
TL;DR: In this paper, the authors conceptualize a model based on the premise of boards as groups of individuals obtaining, processing and sharing information and explain how variation in information processing demands at the director, board and firm level may challenge effective monitoring.
Journal ArticleDOI
Do School Ties between Auditors and Client Executives Influence Audit Outcomes
TL;DR: Wang et al. as mentioned in this paper identify connected auditors as those who attended the same university as the executives of their clients and find that connected audrators are more likely to issue favorable audit opinions, especially for financially distressed clients.
Journal ArticleDOI
Master of Puppets: How Narcissistic CEOs Construct Their Professional Worlds
TL;DR: In this paper, the authors explore how narcissistic CEOs address two powerful and conflicting needs: the need for acclaim and the need to dominate others by employing lower-status, younger and less experienced top management team members who will be more deferential to and dependent on them.
Journal ArticleDOI
Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality
TL;DR: In this paper, the authors examine whether social ties between engagement auditors and audit committee members shape audit outcomes and find that close interpersonal relations can undermine auditors' monitoring of the financial reporting process.
References
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Journal ArticleDOI
On The Social Networks Of Managers
TL;DR: The authors compared the organizational membership networks and core discussion networks of managers and non-managers using data from the National Opinion Research Center's General Social Survey (NOCGS) and found that managers were more likely to participate in discussion networks.
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Former Audit Partners on the Audit Committee and Internal Control Deficiencies
Vic Naiker,Divesh S. Sharma +1 more
TL;DR: In this article, the authors examined the association between internal control deficiencies (ICDs) reported under Section 404 of the Sarbanes-Oxley Act (SOX, U.S. House of Representatives 2002) and the presence of former audit partners on the audit committee who are affiliated (AFAPs) and unaffiliated with the firm's external auditor.
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Getting Inside the Black Box: A Field Study of Practices in “Effective” Audit Committees
TL;DR: This article conducted a field study in three Canadian public corporations, whose respective audit committees complied to a large extent with regulatory guidelines of the Toronto Stock Exchange and the voluntary recommendations of the Blue Ribbon Committee on audit committee effectiveness.
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Audit and Nonaudit Fees and the Market's Reaction to Earnings Announcements
TL;DR: In this article, the authors examined the residual fee-response coefficient relation for annual earnings announcements immediately before and after the release of the earnings and concluded that abnormally profitable engagements are a threat to auditor independence.
Journal ArticleDOI
Costs and Benefits of 'Friendly' Boards during Mergers and Acquisitions
TL;DR: In this paper, the authors examine the connection between takeover returns and board friendliness, using social ties between the CEO and board members as a proxy for less independent boards, and find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high.