The role of the internal audit function in the disclosure of material weaknesses

Accounting Review

Volumn 86, Issue 1, 2011, Pages 287-323

  Lin, Shu ^a   Pizzini, Mina ^b   Vargus, Mark ^c   Bardhan, Indranil R ^d  

^a CALIFORNIA STATE UNIVERSITY   (United States)

^b SOUTHERN METHODIST UNIVERSITY   (United States)

^c DREXEL UNIVERSITY   (United States)

^d UNIVERSITY OF TEXAS AT DALLAS   (United States)

Author keywords

Corporate governance; Internal audit function; Internal control over financial reporting; Material weakness

Indexed keywords

EID: 79952681369     PISSN: 00014826     EISSN: None     Source Type: Journal    
DOI: 10.2308/accr.00000016     Document Type: Article

References (55)

1. Albrecht, W. S., and C. O. Albrecht. 2004. Fraud Examination and Prevention. Mason, Ohio: Thompson/South-Western.
2. American Institute of Certified Public Accountants (AICPA). 1991. The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements. Statement on Auditing Standards No. 65. New York, NY: AICPA.
3. Ashbaugh-Skaife, H., D. Collins, and W. Kinney. 2007. The discovery and reporting of internal control deficiencies prior to SOX-mandated audits. Journal of Accounting and Economics 44 (1-2): 166-192.
4. Asare, S. K., L. A. Cunningham, and A. Wright. 2007. The Sarbanes-Oxley Act: Legal implications and research opportunities. Research Paper 122, Boston College Law School Legal Studies Research Paper Series. Boston, MA: Boston College.
5. Bailey, A. D., Jr., A. A. Gramling, and S. Ramamoorti, eds. 2003. Research Opportunities in Internal Auditing. Altamonte Springs, FL: HA Research Foundation.
6. Bedard, J. C., and L. Graham. 2011. Factors affecting the severity of Sarbanes-Oxley Section 404 internal control deficiencies: Archival evidence. The Accounting Review 86 (3): forthcoming.
7. -, R. Hoitash, and U. Hoitash. 2009. Evidence from the United States on the effect of auditor involvement in assessing internal control over financial reporting. International Journal of Auditing 13 (2): 105-125.
8. Berry, L. E., G. B. Harwood, and J. L. Katz. 1987. Performance of auditing procedures by governmental auditors: Some preliminary evidence. The Accounting Review 58 (1): 14-28.
9. Brown, P. R. 1983. Independent auditor judgment in the evaluation of internal audit functions. Journal of Accounting Research 21 (2): 444-455.
10. -, and V. Karan. 1986. One approach for assessing the operational nature of auditing standards: An analysis of SAS 9. Auditing: A Journal of Practice & Theory 6(1): 134-147.
11. Brown, L., and A. S. Pinello. 2007. To what extent does the financial reporting process curb earnings surprise games? Journal of Accounting Research 45 (5): 947-981.
12. Carcello, J., D. R. Hermanson, and K. Raghunandan. 2005. Factors associated with U.S. public companies investment in internal auditing. Accounting Horizons 19 (2): 69-84. (Pubitemid 44769817)
13. Clark, M. E., T. E. Gibbs, and R. G. Schroeder. 1980. Evaluating internal audit departments under SAS No. 9: Criteria forjudging competence, objectivity, and performance. The Woman CPA. 22 (July): 8-11.
14. Church, B. K., and A. Schneider. 1995. Internal auditors' memory for financial-statement errors. Behavioral Research in Accounting 7: 17-36.
15. Davidson, R., J. Goodwin-Stewart, and P. Kent. 2005. Internal governance structures and earnings management. Accounting and Finance 45 (2): 241-267. (Pubitemid 41664145)
16. Doyle, J., W. Ge, and S. McVay. 2007a. Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics 44 (1-2): 193-223.
17. , , and -. 2007b. Accruals quality and internal control over financial reporting. The Accounting Review 82 (5): 1141-1170.
18. Ettredge, M. L., C. Li, and L. Sun. 2006. The Impact of SOX Section 404 Internal Control Quality Assessment on Audit Delay in the SOX Era. Auditing: A Journal of Practice & Theory 25 (2): 1-23.
19. Frankel, R. M., M. F. Johnson, and K. K. Nelson. 2002. The relation between auditors' fees for nonaudit services and earnings management. The Accounting Review 77 (s-1): 71-105. (Pubitemid 36208805)
20. Ge, W., and S. McVay. 2005. The disclosure of material weaknesses in internal control after the Sarbanes-Oxley Act. Accounting Horizons 19: 137-158. (Pubitemid 44769813)
21. Gompers, P., J. Ishii, and A. Metrick. 2003. Corporate governance and equity prices. The Quarterly Journal of Economics 118(1): 107-155. (Pubitemid 36263883)
22. Goodwin, J., and P. Kent. 2006. Factors affecting the voluntary use of internal audit. Managerial Auditing Journal 21 (1): 81-101. (Pubitemid 44026689)
23. Gramling, A. A., M. J. Maletta, A. Schneider, and B. K. Church. 2004. The role of the internal audit function in corporate governance: A synthesis of the extant internal auditing literature and directions for future research. Journal of Accounting Literature 23: 194-244.
24. Harrell, A., M. Taylor, and E. Chewning. 1989. An examination of management's ability to bias the professional objectivity of internal auditors. Accounting, Organizations and Society 14 (3): 259-269.
25. Hogan, C. E., and M. S. Wilkins. 2008. Evidence on the audit risk model: Do auditors increase audit fees in the presence of internal control deficiencies?. Contemporary Accounting Research 25 (1): 219-242.
26. Hoitash, U., R. Hoitash, and J. C. Bedard. 2009. Corporate governance and internal control over financial reporting: A comparison of regulatory regimes. The Accounting Review 84 (3): 839-867.
27. Institute of Internal Auditors (IIA). 2002. Practice Advisory 1110-2: Chief Audit Executive (CAE) Reporting Lines. Available at: http://som.csudh.edu/ depts/adjunct/mabohebeish/ACC%20336/PA%20ADVISORY/Practice-Advisory-l 110-2.pdf.
28. -. 2004. Internal Auditing's Role in Sections 302 and 404 of the Sarbanes-Oxley Act. Available at: http.7/www.theiia.org/iia/download.cfm?file= 1655.
29. -. 2008. International Standards for the Professional Practice of Internal Auditing. Available at: http://www.theiia.org/guidance/standards-and- guidance/ippf/standards/.
30. -. 2009a. Formulating and Expressing Internal Audit Opinions. Available at: http://www.theiia.org/guidance/standards-and-guidance/ippf/practice-guides/.
31. -. 2009b. Practice Advisory 1110-1: Organizational Independence. Available at: http://som.csudh.edu/depts/adjunct/mabohebeish/ACC%20336/ PA%20ADVISORY/Practice-Advisory-l 110-l.pdf.
32. Krishnan, J. 2005. Audit committee quality and internal control: An empirical analysis. The Accounting Review 80 (2): 649-675. (Pubitemid 40707380)
33. Krishnan, G. V., and G. Vishwanathan. 2007. Reporting internal control deficiencies in the post-Sarbanes-Oxley Era: The role of auditors and corporate governance. International Journal of Auditing 11: 73-90.
34. Kinney, W. 2000. Research opportunities in internal control quality and quality assurance. Auditing: A Journal of Practice & Theory 19 (Winter): 83-90.
35. Maletta, M. J. 1993. An examination of auditors' decisions to use internal auditors as assistants: The effect of inherent risk. Contemporary Accounting Research 9 (1): 508-525.
36. McDaniel, L. S. 1990. The effects of time pressure and audit program structure on audit performance. Journal of Accounting Research 28 (2): 267-285.
37. Messier, W. F, Jr., and A. Schneider. 1988. A hierarchical approach to the external auditors' evaluation of the internal auditing function. Contemporary Accounting Research 4 (2): 337-353.
38. New York Stock Exchange (NYSE). 2009. Listed Company Manual. Available at: http://nysemanual.nyse.com/lcm/.
39. PricewaterhouseCoopers (PwC). 2006. 2006 State of the Auditing Profession Study: Continuous auditing gains momentum. Available at: http://www.pwc.com/us/ en/internal-audit/publications/2009-study-internal-audit-profession.jhtml.
40. Public Company Accounting Oversight Board (PCAOB). 2004. An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements. Auditing Standard No. 2. Washington, D.C. Available at: http://www.pcaobus.org/Rules/Rules-of-the-Board/Auditing-Standard-2.pdf.
41. -. 2005. Report on the Initial Implementation of Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. Release No. 2005-023. November 30. Washington, D.C. Available at: http://pcaobus.org/Inspections/Pages/ PublicReports.aspx.
42. -. 2007a. An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. Auditing Standard No. 5. Washington, D.C. Available at: http://www.pcaobus.org/Standards/Auditing/Pages/ Auditing-Standard-5.aspx.
43. -. 2007b. Report on the Second-Year Implementation of Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. Release No. 2007-004. April 18. Washington, D.C. Available at: http://pcaobus.org/Inspections/Pages/ PublicReports.aspx.
44. Prawitt, D. R, J. L. Smith, and D. A. Wood. 2009. Internal audit function quality and earnings management. The Accounting Review 84(4): 1255-1280.
45. Rogers, J. L., and P. C. Stocken. 2005. Credibility of management forecasts. The Accounting Review 80 (4): 1233-1260. (Pubitemid 41650942)
46. Schneider, A. 1984. Modeling external auditors' evaluations of internal auditing. Journal of Accounting Research 22 (2): 657-678.
47. -. 1985. The reliance of external auditors on the internal audit function. Journal of Accounting Research 23 (2): 911-919.
48. -, and N. Wilner. 1990. A test of audit deterrent to financial reporting irregularities using the randomized response technique. The Accounting Review 65 (3): 668-681.
49. Schwartz, S. T., and R. A. Young. 2002. A laboratory investigation of verification and reputation formation in a repeated joint investment setting. Contemporary Accounting Research 19 (2): 311-342.
50. Securities and Exchange Commission (SEC). 2007. Commission Guidance Regarding Management's Report on Internal Control over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Release Nos. 33-8810, 34-55929. Washington, D.C: SEC.
51. Shumway, T. 2001. Forecasting bankruptcy more accurately: A simple hazard model. Journal of Business 74 (1): 101-125.
52. Stephens, N. M. 2009. Corporate governance quality and internal control reporting under SOX Section 302. Working paper, Utah State University.
53. U.S. Congress. 2002. The Sarbanes-Oxley Act of 2002. Public Law 107-2004. H.R. 3763. Washington, D.C: Government Printing Office.
54. Wallace, W, and R. Kreutzfeldt. 1991. Distinctive characteristics of entities with an internal audit department and the association of the quality of such departments with errors. Contemporary Accounting Research 7 (2): 485-512.
55. Wright, A., and R. H. Ashton. 1989. Identifying audit adjustments with attention-directing procedures. The Accounting Review 64 (4): 710-728.