Date of Award
Spring 2014
Degree Type
Dissertation
Degree Name
Doctor of Business Administration (DBA)
Department
Accountancy
First Advisor
Dr. Dana R. Hermanson
Second Advisor
Dr. Vineeta D. Sharma
Third Advisor
Dr. Marcus Caylor
Abstract
This study examines how audit committees (ACs) fulfill their responsibilities for assessing fraudulent financial reporting (FFR) risk by focusing on the social influence/risk aversion relationship. Although the AC’s responsibility for assessing FFR risk is arguably one of its most important roles, ACs lack consensus on how to perform the task of fraud risk oversight. This study explores this issue at a deeper level by examining the relationship between the AC’s fraud risk assessment process and the professional and personal ties that exist between AC members and (a) management (CEO and CFO), and (b) other corporate governance actors (internal audit, external audit, other AC members, and other independent directors).
The results of a survey of 136 AC members from mid-sized U.S. public companies indicate no association between AC members’ personal or professional relationship ties to management or other corporate governance actors and AC members’ overall reliance on these actors to assess fraud risk. However, I find links between the AC’s own actions to assess fraud risk and (a) personal ties to the CEO/CFO and professional ties to other corporate governance actors, and (b) certain control variables including board of director independence, AC size, and respondent gender. Specifically, I find that AC members with personal ties to the CEO and other independent directors, and professional ties to the CEO and the external audit partner, are less likely to engage in AC actions to assess FFR risk and/or management’s integrity. On the other hand, I find that AC members with personal ties to the CFO, and professional ties to other independent directors and the head of internal audit, are more likely to engage in actions to assess FFR risk and/or management’s integrity. Further, I find that female AC members are more likely to report engaging in activities to assess management’s integrity. I also find that AC size and board independence are positively associated with AC actions to assess FFR risk and/or management’s integrity. In addition, the results provide insights about how AC members delegate their fraud oversight duties, and reveal that AC members generally perceive that management, and internal and external auditors, are more responsible for assessing fraud risk than the AC, or other independent directors. This study should be of interest to regulators, researchers and other groups concerned with management-director relationship ties, AC composition, director independence, and AC oversight issues.