Do Board Interlocks Deter Sound Internal Controls

• In Event: Miscellaneous Accounting Topics

Abstract

This study investigates internal controls over financial reporting using SOX 404 auditor’s opinions and examines how companies with governance structures utilizing board interlocks impact effective internal controls. Results show that companies that have board interlocks have a high likelihood of an adverse SOX section 404 auditor’s internal control opinion. The implication is a lack of sufficient external board oversight, allowing companies to exercise more discretion over their internal control decisions, potentially undermining the intention of SOX in its regulation requiring more external board monitoring for better financial information quality.

Author

• Lucy Uche Diala, California State University, Fresno