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Facilitating knowledge transfer during SOX-mandated audit partner rotation

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  • Sanders, Christina Butler
  • Steward, Michelle D.
  • Bridges, Sheri
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    Abstract

    Audit teams are responsible for the discovery of the true financial state of a business. The ramifications of the quality of these efforts ripple throughout our economy. Requirements of Section 203 of the Sarbanes-Oxley Act of 2002 (SOX)--which mandates rotation of the audit team member who bears primary responsibility for the audit--began to take effect as recently as 2007-2008. The potential for knowledge loss within the audit team via this mandated rotation comes with great costs and risks for all stakeholders, as audit team members possess perhaps the most intimate knowledge of businesses. To aid in the prevention of knowledge loss and the facilitation of knowledge transfer from the outgoing to the incoming partner, we suggest four primary knowledge transfer approaches which may be used together in the post-SOX environment. These approaches are: (1) adequate planning of member rotation far in advance of the deadline for each partner; (2) consideration of strategic fit among the incoming partner, the client, the industry, and the team; (3) improved documentation of the outgoing partner's knowledge to be shared with the incoming partner; and (4) increased interaction among the rotating partners--outgoing and incoming--and the client to assist in the sharing of critical, yet difficult to transfer, tacit knowledge.

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    Bibliographic Info

    Article provided by Elsevier in its journal Business Horizons.

    Volume (Year): 52 (2009)
    Issue (Month): 6 (November)
    Pages: 573-582

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    Handle: RePEc:eee:bushor:v:52:y:2009:i:6:p:573-582

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    Web page: http://www.elsevier.com/locate/bushor

    Related research

    Keywords: Knowledge management Sarbanes-Oxley Audit teams Knowledge transfer;

    References

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    1. Joseph D. Piotroski & Suraj Srinivasan, 2008. "Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings," Journal of Accounting Research, Wiley Blackwell, vol. 46(2), pages 383-425, 05.
    2. Arrunada, Benito & Paz-Ares, Candido, 1997. "Mandatory rotation of company auditors: A critical examination," International Review of Law and Economics, Elsevier, vol. 17(1), pages 31-61, March.
    3. Szulanski, Gabriel, 2000. "The Process of Knowledge Transfer: A Diachronic Analysis of Stickiness," Organizational Behavior and Human Decision Processes, Elsevier, vol. 82(1), pages 9-27, May.
    4. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    5. Jaime Ortega, 2001. "Job Rotation as a Learning Mechanism," Management Science, INFORMS, vol. 47(10), pages 1361-1370, October.
    6. Gabriel Szulanski & Robert J. Jensen, 2004. "Overcoming stickiness: An empirical investigation of the role of the template in the replication of organizational routines," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(6-7), pages 347-363.
    7. Geisler, Eliezer, 2007. "The metrics of knowledge: Mechanisms for preserving the value of managerial knowledge," Business Horizons, Elsevier, vol. 50(6), pages 467-477.
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