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The effects of disclosure type and audit committee expertise on Chief Audit Executives' tolerance for financial misstatements

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  • Norman, Carolyn Strand
  • Rose, Jacob M.
  • Suh, Ik Seon

Abstract

This study involves an experiment where 73 Chief Audit Executives and deputy Chief Audit Executives determine the amount of adjustment required to correct a misstatement. We manipulate the financial reporting location of the misstatement (recognized vs. disclosed) and the level of audit committee expertise (high vs. low). The results indicate that financial reporting location has significant effects on internal auditors' decisions to correct misstatements. Specifically, internal auditors are more willing to waive disclosed misstatements relative to recognized misstatements. Contrary to expectations, the results do not indicate that increased audit committee expertise and associated increases in audit committee members' perceived powers cause internal auditors to be less willing to waive misstatements.

Suggested Citation

  • Norman, Carolyn Strand & Rose, Jacob M. & Suh, Ik Seon, 2011. "The effects of disclosure type and audit committee expertise on Chief Audit Executives' tolerance for financial misstatements," Accounting, Organizations and Society, Elsevier, vol. 36(2), pages 102-108, February.
    • Handle: RePEc:eee:aosoci:v:36:y:2011:i:2:p:102-108
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    References listed on IDEAS

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    1. G. Sarens & I. De Beelde, 2006. "Internal audit: the expert in providing comfort to the audit committee. The case of risk management and internal control," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/428, Ghent University, Faculty of Economics and Business Administration.
    2. Orie Barron & Jamie Pratt & James D. Stice, 2001. "Misstatement Direction, Litigation Risk, and Planned Audit Investment," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 449-462, December.
    3. Robert Libby & Mark W. Nelson & James E. Hunton, 2006. "Retracted: Recognition v. Disclosure, Auditor Tolerance for Misstatement, and the Reliability of Stock‐Compensation and Lease Information," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 533-560, June.
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    Cited by:

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