3 research outputs found
Management influence on auditor selection and subsequent impairments of auditor independence during the post-SOX period
The objective of this study is to examine managerial involvement in auditor selection decisions when audit committees are âdirectly responsibleâ for auditor relationships, including selection of the audit firm. The SarbanesâOxley Act (SOX) of (2002) requires fully independent audit committees to be âdirectly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firmâ (Section 301). This statutory requirement is a regulatory attempt to eliminate management influence over the external auditor and align auditor incentives with those of the board and shareholders.1 While regulators largely assume that audit committees take responsibility for auditor selection in the postâSOX period (Doty 2011), there exists no archival analysis testing this assumption. Therefore, the effectiveness of this regulation (SOX Section 301) remains uncertain. In this paper, we examine (a) whether contrary to the intent of SOX, managers continue to influence auditor selection decisions in the postâSOX period, and (b) whether this influence subsequently impairs auditor independence as presumed in the legislation