The effects and potential benefits of audit committee oversight in a strategic setting

• 成果类型: Article
• 署名作者: Patterson, Evelyn R.; Smith, J. Reed; Tiras, Samuel L.
• 署名单位: Indiana University System; Indiana University Indianapolis; IU Kelley School of Business
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12964
• 发表日期: 2024
• 页码: 2013-2040
• 关键词: quality; FRAUD

摘要

Since the passage of the Sarbanes-Oxley Act of 2002, many notable frauds have been tied to ineffective audit committee (AC) oversight. As a result, AC oversight is of continuing interest, and regulators continue to debate this issue, garnering a growing body of research focused on the role played by the AC. But little theoretical research exists to guide analytical and empirical researchers investigating AC oversight. The purpose of this study is to provide theoretical guidance by examining AC oversight in a strategic setting. We focus on the AC's role in overseeing internal controls (ICs) and the impact of whether the AC relies on management in designing the controls. We characterize how the nature of control risk changes and how IC strength is associated with the amount of managerial fraud, expected probability of fraud detection (which, on average, equates to audit effort), and audit quality (assessed as 1 - audit risk) across two settings defined by the degree of AC oversight. As one example that highlights the need for theoretical guidance, we consider the literature's presumption that IC strength is negatively associated with audit effort. We find that this association may be positive or negative as IC changes, where the association varies with the degree of direct AC oversight and the change in payoff parameters.