Solved by verified expert:Absolutely no plagiarism, must be original and very thorough. Please make sure everything is followed in the question and the grading rubric. Assigned articles is attached but also must include at least three other academic relevant outside resource, total of at least 4 references. Must include in-text citations. Please include the free link to the relevant academic source. Supporting material: Please feel free to use these links…Must also include one other academic relevant outside resource. Hansye, Y. K. (2012). The audit committee: A gatekeeper for effective corporate governance (Master’s Thesis). Social Science Research Network. Retrieved from: Ioannou, I., & Serafeim, G. (2012). The consequences of mandatory corporate sustainability reporting. Social Science Research Network. Retrieved from Audit Committee Resource Guide. (2015). Deloitte. Retrieved from Question:Benefits of Mandatory Disclosure After reading the assigned article, The Consequences of Mandatory Corporate Sustainability Reporting, how do you see sustainability reporting being incorporated in the roles and responsibilities of the Audit Committee? How would mandatory disclosure benefit the organization? Provide specific examples to support your viewpoint. Write a 5-page paper about your argument in a Word document (or equivalent format) that includes the following: 1. A cover sheet (no abstract) 2. Margins/font size/spacing: 1” margins top, bottom, left and right, size 12-point font, double spacing evenly throughout. 3. Minimum of 3 references to valid (recent, relevant, high-quality) external sources of information and properly cited within the text and cited in APA format within the reference page. Please see grading rubric below. This assignment should be at least 5 pages long and very thorough. Make sure you integrate real-life applications to support key points. Criteria Ratings Pts This criterion is linked to a Learning Outcome Critical Thinking 25.0 pts Assignment demonstrates excellent use of various critical thinking standards and concepts. These may include proper use of logic, reasoning, and the posing of well-considered questions. 25.0 pts This criterion is linked to a Learning Outcome Content and Development 25.0 pts Content is very comprehensive and supported by detailed references to lectures and assigned readings. Thoroughly evaluates the impact, creativity, and value of the subject. This criterion is linked to a Learning Outcome Research 15.0 pts Contains at least 3 references to valid (recent, relevant, high-quality) external sources of information. Contains 1 reference from the assigned reading. This criterion is linked to a Learning Outcome APA Format and Style 10.0 pts APA format and style are accurately and consistently applied to the entire assignment. This criterion is linked to a Learning Outcome Writing Organization 5.0 pts Material is organized in a logical fashion and contains appropriate headings and sub-headings. This criterion is linked to a Learning Outcome Writing Mechanics 15.0 pts Writing is entirely free of grammatical, spelling and/or language errors. This criterion is linked to a Learning Outcome Length 5.0 pts Within target range, not including title page, table of contents or references page.


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Corporate Governance in the Post-Sarbanes-Oxley
Era: Auditors’ Experiences*
JEFFREY COHEN, Boston College
GANESH KRISHNAMOORTHY, Northeastern University
ARNIE WRIGHT, Northeastern University
1. Introduction
In the aftermath of major accounting scandals such as Enron and WorldCom and an alarming number of earnings restatements (Palmrose and
Scholz 2004; Agrawal and Chadha 2005), there were calls for major reforms
in the responsibilities and oversight of management, external auditing, and
corporate governance (in particular, the audit committee and board of
directors). These calls culminated in the enactment of the Sarbanes-Oxley
Act in 2002 (hereafter referred to as SOX).
The primary purpose of the current study is to capture the experiences
of auditors in their interactions with the audit committee, board, and internal auditors in the post-SOX environment. In particular, we focus on how
such interactions affect the audit process (e.g., risk assessments and resolution of contentious accounting issues) and the audit environment (e.g.,
appointment and termination of auditors). In addition, as a secondary
objective we examine if auditors’ experiences with the current governance
structure are in line with an effective monitoring approach (Beasley, Carcello, Hermanson, and Neal 2009) or whether the reforms are merely symbolic
(Cohen, Krishnamoorthy, and Wright 2008; Powell 1991).
Based on interviews with 36 external auditors (11 seniors, 12 managers,
and 13 partners) prior to the passage of SOX, Cohen, Krishnamoorthy, and
Wright (hereafter referred to as CKW) (2002) captured auditors’ experiences
with respect to corporate governance and the audit process. They report
that auditors generally found audit committees to be ineffective in monitoring the financial reporting process. Given the dramatic changes in the
Accepted by Michel Magnan. We want to thank the participants for being generous with
their valuable time and expertise. We would like to acknowledge the comments of participants at the 2007 Alternative Perspectives on Accounting Research Conference held in
Québec City, the 2007 International Symposium on Auditing Research in Shanghai, the
2008 Midyear Auditing Meeting of the American Accounting Association in Austin, TX,
and workshops at Arizona State University (West), Boston College, Iowa State University, University of Western Ontario and the University of Wisconsin at Madison. We also
thank the anonymous reviewers and the editor, Michel Magnan, for many valuable comments and suggestions.
Contemporary Accounting Research Vol. 27 No. 3 (Fall 2010) pp. 751–786  CAAA
Contemporary Accounting Research
responsibilities of management, the board, the audit committee, and auditors mandated by SOX and related regulation, it is important to examine
whether auditor experiences have changed significantly in the post-SOX era.
We also extend CKW by looking at contemporary issues stemming from
various provisions of SOX such as the substantive role that audit committees are expected to play in the appointment and termination of the auditors. Finally, when relevant, we compare the experiences of auditors with
those of audit committee members as reported by Beasley et al. 2009 based
on their interview study of audit committee members.
To address these issues, similar to CKW 2002, we conducted semi-structured interviews with 30 experienced audit partners and managers from
three of the Big 4 firms. We find that auditors report that the corporate
governance environment has improved considerably in the post-SOX era
with audit committees that are substantially more active, diligent, knowledgeable, and powerful. However, in some instances governance appears to
be symbolic. For example, management continues to be seen as a major
corporate governance actor and, contrary to the intent of SOX, often the
driving force behind auditor appointments and terminations. Further, some
auditors report that audit committees play a passive role in helping resolve
disagreements with management.
The remainder of this paper is divided into five sections. The next section provides a review of relevant studies followed by the identification of
the overarching research question. The two sections that follow provide a
description of the method and present the research findings. The final two
sections contain an analysis, interpretation, and contribution of the findings
of the study vis-à-vis agency and institutional theories as well as CKW
2002, with the last section devoted to a summary and discussion of the
major findings and their implications for practice and future research.
2. Relevant research and research question
Effectiveness of corporate governance with respect to financial reporting
Prior research provides evidence that strong corporate governance, as measured primarily using archival data, is associated with improved financial
reporting quality in terms of a lower incidence of fraud (McMullen 1996;
Abbott, Park, and Parker 2000; Beasley, Carcello, Hermanson, and Lapides
2000; Farber 2005), fewer restatements (Abbott, Parker, and Peters 2004),
and lower levels of earnings management (Klein 2002; Xie, Davidson, and
DaDalt 2003; Bédard, Chtourou, and Courteau 2004). The current study
extends prior research on this important issue in three ways. First, in a
review of the literature, DeFond and Francis (2005) note that existing
research indicates that greater financial expertise and more frequent audit
committee meetings are associated with improved reporting. However, there
is no evidence on the effectiveness of some of the requirements of SOX as
viewed from the experiences of auditors, the focus of the current study.
CAR Vol. 27 No. 3 (Fall 2010)
Corporate Governance in the Post-Sarbanes-Oxley Era
Second, in a response to DeFond and Francis 2005, Carcello (2005) notes
that financial expertise for the audit committee is defined very broadly by
the Securities and Exchange Commission. Thus, there is need for research
on how diversity of expertise can potentially influence audit committee
effectiveness. Further, there is little evidence on other potentially important
dimensions such as audit committee power and diligence. The current study
investigates these issues.
Third, the findings of two recent studies provide further motivation for
the research. DeZoort, Hermanson, and Houston (2008) report that audit
committee support is significantly greater in the post-SOX period, and this
finding is driven by members who are Certified Public Accountants.
Further, participants indicate they believe audit committees have greater
expertise, are more conservative, and more concerned with reporting accuracy after SOX, and they perceive that audit committees have greater power
in resolving disputed matters. Thus, there is strong initial evidence that the
findings of research in corporate governance conducted prior to the enactment of SOX may need to be revisited in light of the changes in environmental and institutional forces in the post-SOX regime.
Based on an interview of audit committee members, Beasley et al.
(2009) find that, in the post-SOX era, audit committee members perceive
that they take an active role in monitoring the financial reporting process.
Further, audit committee members perceive that presently audit committees
have the requisite financial expertise, meet frequently and for long time
periods, and ask probing questions of management. However, there is also
evidence of the audit committee performing ceremonial roles.
The research cited above generally suggests an improved corporate governance environment after the enactment of SOX in promoting sound financial reporting and in improving corporate governance. However, the current
research extends our knowledge of the post-SOX environment because we
examine the experiences of the auditor. This is important as the nature and
strength of corporate governance is expected to impact the audit process
(e.g., risk assessments and extent of audit tests), because professional standards dictate that the audit should be tailored to the risk of misstatements
(American Institute of Certified Public Accountants 1984). Further, the
audit committee is responsible for overseeing the quality of financial reporting and the audit and hence is expected to affect the audit process and audit
quality, including ensuring proper resolution of auditor–client disputes
(SOX 2002).
Auditors’ experiences with corporate governance
Despite the potential conceptual link of the impact of corporate governance
on the audit process, there is limited empirical evidence to date documenting this link. Early work on this issue was conducted by Cohen and Hanno
2000, who find that management control philosophy and governance structure (audit committee and board) affected auditors’ preplanning (client
CAR Vol. 27 No. 3 (Fall 2010)
Contemporary Accounting Research
acceptance, business risk judgments) and planning judgments (extent and
timing of tests). Bédard and Johnstone (2004), using archival data, find a
significant effect of earnings manipulation risk on planned audit effort and
billing rates and the effect is greater for clients that have heightened corporate governance risk, while Ng and Tan (2003) find that the effect of the
availability of authoritative guidance on the resolution of a proposed audit
adjustment is higher in the absence of an effective audit committee than in
its presence.
CKW interview study
As noted, CKW (2002) is the only prior study that directly captures auditor
experiences concerning their interactions with audit committees and boards
of directors and the resulting effect on the audit process. CKW found that
auditors’ experiences indicated audit committees to be lacking the expertise,
power, and skepticism that would make them effective. In effect, auditors
frequently found audit committees to play a passive and ritualistic role. In
all, CKW found that auditors’ experiences prior to SOX suggested a corporate governance environment that lacked meaningful substance.
Contributions of the current study and overarching research question
Because of the significant expanded responsibilities required by SOX and an
environment of heightened concerns for financial reporting quality, the current study examines whether and to what extent auditors’ experiences with
corporate governance parties, particularly the audit committee, have changed since CKW 2002 in the post-SOX environment. Further, we provide
corroborating evidence of auditors’ experiences to compare to those
reported by audit committee members (DeZoort et al. 2008; Beasley et al.
2009) on issues such as audit committee expertise, power, and involvement
in resolving disputes. Finally, we extend the CKW study by providing evidence on important regulatory requirements of SOX such as chief executive
officer (CEO) and chief financial officer (CFO) certification of the financial
reports. In all, we investigate the following overarching research question:
RESEARCH QUESTION: How have auditors’ experiences with corporate
governance parties changed in the post-SOX era?
3. Method
We employed a semi-structured interview approach to address the research
question. An interview approach allows us to gain insights into the ‘‘black
box’’ of the audit process and the interactions between auditors and other
corporate governance parties (Gendron, Bédard, and Gosselin 2004;
Gendron and Bédard 2006; Beasley et al. 2009). We asked contact people
from the office of each of the Big 4 firms in a large Northeastern city in the
United States to solicit the voluntary participation of audit managers and
CAR Vol. 27 No. 3 (Fall 2010)
Corporate Governance in the Post-Sarbanes-Oxley Era
partners. As a result of this call, 11 managers and 19 partners from three of
the Big 4 firms agreed to participate in our study. The interviews were conducted in 2006.1
Table 1 provides demographic data about the sample. As indicated in
panel A, managers (partners) had an average of 9 (18.5) years of auditing
experience, with an average 66 (76) percent of their last 5 years’ experience
with public company clients. With the exception of one partner, all participants had worked with public clients but not all the experiences they
discussed related completely to public companies. Participants were free to
note any substantial differences between public and nonpublic clients. Some
questions specifically focus on provisions of SOX and thus are only applicable to public companies.
Panel B provides a summary of industry specialization of participants.
The panel shows that the sample is representative of a broad spectrum of
industries that is reflective of the practice base of the participating audit
firms, with the largest percentage of auditors focused on financial services.2
The interviews were structured around 19 questions.3 When constructing the questionnaire, we carefully reviewed the following sources to identify
significant issues for interview questions: the questionnaire in CKW 2002,
literature on recent legislative and regulatory reforms (e.g., SOX), academic
accounting research, and professional literature including recent changes in
auditing standards (e.g., audit of internal controls). We did not interview
audit seniors for this study because findings from CKW indicated that
seniors have limited exposure to corporate governance and knowledge of
how this impacts the audit process.4
In order to ensure external and internal validity of the questions, two
audit partners and several academic researchers (not associated with this
study) independently evaluated the questions for clarity, completeness, and
relevance. The interviews were conducted by at least one member of the
research team at the offices of the audit firm with each interview taking
approximately 45 minutes to one hour. Interview questions were emailed to
the participants in advance with an explicit instruction that participants
should refrain from discussing the questions or their response with their
Because the impact of the financial reporting reforms resulting from SOX and regulatory
agencies (e.g., the stock exchanges) are expected to be pervasive across all of the Big 4
firms, we do not expect any differences in responses across firms. Our review of the transcripts from the interviews confirms this expectation.
Given that the largest percentage of participants indicated the financial services industry
as their specialization, we compared the qualitative responses of these participants with
the responses of all other participants. Based on this analysis, we did not find evidence to
support the notion that the financial services industry is in some way different from other
industries in terms of the impact of SOX.
A copy of the instrument is available from the authors upon request.
Accordingly, all comparisons in this paper to the results in CKW 2002 include responses
from managers and partners only and exclude responses from seniors.
CAR Vol. 27 No. 3 (Fall 2010)
Contemporary Accounting Research
Demographic data
Audit Managers* n=10
Audit Partners* n=18
Total* n=28
Panel A: Years of auditing experience (percentage of last five years of experience
with public company clients)
9.0 (66)
18.5 (76)
15.1 (73)
8.0 (65)
18.5 (80)
14.5 (75)
5–20 (40–100)
10–30 (0–100)
5–30 (0–100)
Data was unavailable for one partner and one manager.
# of audit managers
and partners
Panel B: Industry specialization
Financial services, including mutual funds and banks
Consumer products ⁄ business
Other (utilities, real estate, public sector, and services)
This total exceeds the number of participants (30) because some participants reported
specialization in more than one industry.
colleagues. Participants were informed that the objective of the study was to
obtain their experiences with audit clients, and hence there are no right or
wrong answers to the questions. Further, as is customary in such studies,
participants were informed that their responses would be held in strict confidence. Consistent with CKW 2002 and Hirst and Koonce 1996, when auditors’ responses indicated that we pursue them in order to gain a more
complete understanding we did so before returning to the interview questionnaire. With permission, interviews were audiotaped to ensure completeness and accuracy. Tapes were later transcribed by research assistants. As
described more fully in the next section, a coding scheme for each question
was developed. All interviews were then coded by two members of the
CAR Vol. 27 No. 3 (Fall 2010)
Corporate Governance in the Post-Sarbanes-Oxley Era
research team with an average initial intercoder agreement of 88 percent,
indicating a high level of coding reliability. The researchers attempted to
reconcile all disagreements, with remaining unresolved disagreements reconciled by a third member of the research team.
4. Results5
Tables 2 and 3 provide results from the analysis of coded responses. Responses
to open-ended questions (e.g., What is your definition of corporate governance?) are coded as 1 (0) if the indicated response was (was not) identified by
the respondent. Responses to a closed-ended question (e.g., Do discussions
with audit committee impact audit risk assessment?) are coded as 1 (yes), 0
(no), or NA (not available). A response was coded as NA if the question was
not asked or if the participant did not respond to the question. Responses
coded as NA were excluded from the computation of percentages.
Definition of corporate governance
Despite the importance placed on corporate governance in academia and
practice in recent years, there is still no universally accepted definition of
corporate governance, and there is even greater divergence of views on what
is considered ‘‘good governance’’. CKW (2002) found that auditors placed
management in the forefront of corporate governance. Given the dramatic
changes of SOX with respect to the financial oversight responsibilities of the
board and the audit committee, auditors’ views on what constitutes ‘‘corporate governance’’ may have changed since the CKW study. Consistent with
CKW, we did not offer participants a definition of governance, but rather
asked them to provide us with their definition.
Table 2 (panel A) summarizes the parties included in the participants’
definition of corporate governance. The definitions predominately focused
on the management (67 percent) and the board (67 percent). Noting the
importance of the board in achieving effective governance, a partner stated
that a board is a ‘‘buffer between the management and shareholders’’. However, another partner stated:
In the course of our analysis, we did not find any apparent substantive differences in the
qualitative (verbal) responses of managers versus partners. With respect to differences in
the coded (quantitative) responses included in Tables 2 and 3, there were a few responses
that were different between managers and partners although these differences were not
pervasive across all questions or across all responses within a question ⁄ topic. Importantly, the usable sample size with respect to managers was predominately in single digits,
making statistical tests of differences in responses between managers and partners infeasible. Accordingly, the results reported in Tables 2 and 3 combine the responses of managers and partners.
CAR Vol. 27 No. 3 (Fall 2010)
Contemporary Accounting Research
Definition and role of corporate governance
Open-ended (OE) or
Closed-ended (CE)
Questio …
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