External auditor characteristics and internal control reporting under SOX section 302

Abstract

Purpose

The purpose of this paper is to examine whether external auditor traits influenced the reporting of internal control deficiencies (ICDs) prior to SOX‐mandated audits, holding constant the existence of a control weakness.

Design/methodology/approach

Data are collected from publicly available sources such as Securities and Exchange Commission filings and Audit Analytics database.

Findings

Companies that were audited by industry leading auditors were more likely to disclose ICDs prior to SOX‐mandated audits and that companies with longer client‐auditor tenure were less likely to disclose ICDs prior to SOX‐mandated audits.

Originality/value

These findings suggest that while external auditors were not required to participate in internal control evaluation and certifications prior to their audit of internal control for the 2004 fiscal year, they nevertheless influence the likelihood of ICD disclosure prior to their initial audit.

Citation

Stephens, N.M. (2011), "External auditor characteristics and internal control reporting under SOX section 302", Managerial Auditing Journal, Vol. 26 No. 2, pp. 114-129. https://doi.org/10.1108/02686901111095001