HCBE Theses and Dissertations
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THE ROLE OF AUDIT FIRM TENURE IN A FIRM'S PROPENSITY TO DISCLOSE MATERIAL WEAKNESSES IN INTERNAL CONTROLS AFTER SOX
Date of Award
Dissertation - NSU Access Only
Doctor of Business Administration (DBA)
H. Wayne Huizenga School of Business and Entrepreneurship
Audit firm tenure impacts the quality of audit work and the disclosure of material internal control weaknesses. Public firms are required by the Sarbanes Oxley Act of 2002 (SOX) Section 302 to disclose material internal control weaknesses. Researchers debate whether audit firm rotation is necessary for improving audit quality (Chen, Lin, & Lin, 2008). Generally, an auditor needs sufficient time to become familiar with a client's business in order to enhance effective controls and financial reporting. However, long tenure may diminish auditor independence, and in turn reduce the quality of audit work and encourage a client to violate SOX disclosure requirements. Therefore, it is expected that the disclosure of material internal control weaknesses is less likely given long audit tenure.
Prior studies consider many variables that impact the disclosure of control weaknesses, except audit tenure. Further, prior studies do not address the issue of whether familiarity or independence explains non-disclosure. This dissertation investigates the role of audit firm tenure and concludes that the disclosure of material internal control weaknesses is more likely given short tenure. Further, familiarity with the client's business, which is associated with long tenure, explains non-disclosure and not the lack of independence. Therefore, audit firm rotation may not be necessary.
David AduBoateng. 2011. THE ROLE OF AUDIT FIRM TENURE IN A FIRM'S PROPENSITY TO DISCLOSE MATERIAL WEAKNESSES IN INTERNAL CONTROLS AFTER SOX. Doctoral dissertation. Nova Southeastern University. Retrieved from NSUWorks, H. Wayne Huizenga School of Business and Entrepreneurship. (6)