Title: The contingent effects of board independence and audit committee effectiveness on internal audit reliance: a pre-SOX perspective

Authors: Ganesh Krishnamoorthy; Mario Maletta

Addresses: D'Amore-McKim School of Business, Northeastern University, 360 Huntington Ave, Boston, MA 02115, USA ' D'Amore-McKim School of Business, Northeastern University, 360 Huntington Ave, Boston, MA 02115, USA

Abstract: The period leading up to the Sarbanes-Oxley Act (SOX) witnessed criticism levelled against the auditors regarding audit failures, but limited research exists exploring the positive effects of auditor judgements during the pre-SOX period. This paper explores one such context by examining whether external auditors' judgements relating to internal audit were affected by the audit committee governance strength and accounting expertise, and the level of board independence. Results indicate that the greater the governance strength and accounting expertise of the audit committee, the greater the assessed quality of internal audit, and the greater the overall level of coordination between internal and external audit. Findings also indicate that the positive effects of audit committee characteristics on the external audit process may be attenuated by board independence. Collectively, findings reveal the contingent effects of board independence and audit committee governance and accounting expertise on the relationship between internal and external auditors.

Keywords: internal audit; board of directors; auditing; board independence; audit committee effectiveness; pre-SOX; auditor judgements; external auditors; governance strength; accounting expertise; audit committees.

DOI: 10.1504/IJAF.2016.076558

International Journal of Accounting and Finance, 2016 Vol.6 No.1, pp.62 - 85

Accepted: 28 Jan 2016
Published online: 12 May 2016 *

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