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Are fully independent audit committees really necessary?


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  • Bronson, Scott N.
  • Carcello, Joseph V.
  • Hollingsworth, Carl W.
  • Neal, Terry L.
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    Accounting scandals and concerns about the quality of financial statements have led to many calls for improved audit committee effectiveness. Prior research indicates that audit committee independence is positively related to effective oversight of the financial reporting process. Unfortunately, prior research has not provided an answer as to how much independence on the audit committee is enough. This is an important unanswered question because while Section 301 of the Sarbanes-Oxley Act of 2002 (SOX) currently requires all listed companies to maintain an audit committee that is 100% independent there has been much debate regarding easing the SOX requirements for smaller and foreign companies. In this paper we examine whether the regulatory requirements of a completely independent audit committee are necessary to obtain the monitoring benefits related to audit committee independence that have been documented in prior literature. Our results suggest that the benefits of audit committee independence are consistently achieved only when the audit committee is completely independent. These results provide support for the SOX requirement of 100% independent audit committees.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Public Policy.

    Volume (Year): 28 (2009)
    Issue (Month): 4 (July)
    Pages: 265-280

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    Handle: RePEc:eee:jappol:v:28:y:2009:i:4:p:265-280

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    Related research

    Keywords: Audit committee independence Auditor dismissals Going-concern reports;


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    Cited by:
    1. Jin, Justin Yiqiang & Kanagaretnam, Kiridaran & Lobo, Gerald J., 2013. "Unintended consequences of the increased asset threshold for FDICIA internal controls: Evidence from U.S. private banks," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4879-4892.
    2. Nandini Chandar & Hsihui Chang & Xiaochuan Zheng, 2012. "Does overlapping membership on audit and compensation committees improve a firm's financial reporting quality?," Review of Accounting and Finance, Emerald Group Publishing, vol. 11(2), pages 141-165, May.
    3. Stefanelli, Valeria & Matteo, Cotugno, 2010. "An Empirical Analysis on Board Monitoring Role and Loan Portfolio Quality Measurement in Banks," MPRA Paper 29766, University Library of Munich, Germany.


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