Auditor Attributes and Timely Reporting of SOX 404 Material Control Weaknesses

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

Abstract

We examine the association between audit firm attributes that are believed to indicate higher overall audit quality and the timely reporting of SOX 404 material control weaknesses during misstatement periods. Using a sample of restatements during 2004-2010, we find that auditors from larger practice-offices are significantly more likely to report material weaknesses in a timely fashion, as are auditors with expertise in the client’s industry at the audit-firm and audit-office levels. We find some weak evidence that auditors with longer association with the client also provide timelier reporting of material weaknesses. Finally, auditors are significantly more likely to report material weaknesses in a timely fashion for their more economically important clients, consistent with auditors facing greater external scrutiny and litigation risk on account of these clients. Overall, the results indicate that audit firm attributes that capture various aspects of auditor expertise and independence are strongly associated with timely reporting of material weaknesses.

Authors

• Nader Wans, Memorial University of Newfoundland

• Divya Anantharaman, Rutgers, The State University of New Jersey, Newark