（2009）Corporate Governance and Internal Control over Financial Reporting：A Comparison of Regulatory Regimes.pdfVIP

THE ACCOUNTING REVIEW American Accounting Association Vol. 84, No. 3 DOI: 10.2308/accr.20039 2009 pp. 839–867 Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes Udi Hoitash Northeastern University Rani Hoitash Bentley University Jean C. Bedard Bentley University and University of New South Wales ABSTRACT: This study examines the association between corporate governance and disclosures of material weaknesses (MW) in internal control over financial reporting. We study this association using MW reported under Sarbanes-Oxley Sections 302 and 404, deriving data on audit committee financial expertise from automated parsing of member qualifications from their biographies. We find that a lower likelihood of disclosing Sec- tion 404 MW is associated with relatively more audit committee members having ac- counting and supervisory experience, as well as board strength. Further, the nature of MW varies with the type of experience. However, these associations are not detectable using Section 302 reports. We also find that MW disclosure is associated with desig- nating a financial expert without accounting experience, or designating multiple finan- cial experts. We conclude that board and audit committee characteristics are associ- ated with internal control quality. However, this association is only observable under the more stringent requirements of Section 404. Keywords: internal controls; corporate governance; audit committee; financial expertise.