Disclosing Material Weakness in Internal Controls: Does the Gender of the CFO and Audit Committee Members Matter?

• In Event: Continental Breakfast and Research & Education Forum
  In Roundtable Session: Table 9: Auditing ICFR

Abstract

As mandated by Sarbanes-Oxley Act, firms must disclose material weaknesses in their internal control systems. This study extends the body of accounting research that seeks to identify the factors associated with such disclosure. Drawing upon gender research in the behavioral sciences, we argue that female CFOs and female audit committee members examine the internal control system more critically and thoroughly than their male counterparts due to differences in risk and information processing; hence, firms with females in these positions are more likely to report problems with internal controls. To examine the issue, a logistic regression model of material weakness disclosure is developed that includes, as predictor variables, CFO gender, proportion of females on the audit committee, and control variables identified in previous studies (e.g., firm profitability, size, sales growth). Based upon a sample of 4,936 firms, we find that the likelihood of disclosing internal control deficiencies is higher if females serve as a CFO or on the audit committee.

Authors

• Yun-Chia Yan, The University of Texas at Brownsville

• Robert James Parker, University of New Orleans

• Hua-Wei Huang, National Cheng Kung University

• Mai Dao, The University of Toledo