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Audit committee composition and effectiveness: a review of post-SOX literature

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  • Mahfuja Malik

Abstract

The Sarbanes–Oxley act (SOX) was enacted to strengthen corporate governance practices in the United States; since SOX enactment, the audit committee has received increasing emphasis in accounting research. The main objective of this study is to review and synthesize the growing volume of audit committee literature in the post-SOX era. While summarizing the post-SOX literature, this study also focuses on selected pre-SOX studies to compare the research issues and findings of pre- and post-SOX literature and to show how governance reforms shape the literature’s domain. The extant audit committee literature reflects an enormous body of knowledge. Pre-SOX literature documents that audit the committee composition criteria play a significant role in determining the effectiveness of the audit committee. Like the pre-SOX literature, post-SOX literature establishes the notion that independent and expert audit committees enhance the effectiveness of the audit committee monitoring processes and improve the overall quality of financial reporting and auditing. These findings supplement the scholarly support for SOX requirements. In the post-SOX era, researchers have focused on those issues driven by SOX. However, other issues that are not addressed by SOX have also emerged during the post-SOX period, including audit committee compensation and the social ties of committee members with the chief executive officer as well as the supervisory or other expertise of audit committee members. However, for some issue, the findings are not conclusive. For example, post-SOX researchers have documented inconsistent findings regarding the association between the audit committee monitoring process and the different forms of compensation for audit committee members. Moreover, both the pre- and post-SOX literature contain predominantly experimental research. So, there remains ample room for future empirical research that can shed further light on the more theoretical issues. Future researchers can investigate unanswered questions by establishing an implicit understanding of existing findings and developing theories in this area. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Mahfuja Malik, 2014. "Audit committee composition and effectiveness: a review of post-SOX literature," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 25(2), pages 81-117, October.
    • Handle: RePEc:spr:jmgtco:v:25:y:2014:i:2:p:81-117
    DOI: 10.1007/s00187-014-0188-4
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    2. Ghafran, Chaudhry & O'Sullivan, Noel & Yasmin, Sofia, 2022. "When does audit committee busyness influence earnings management in the UK? Evidence on the role of the financial crisis and company size," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    3. Street, Daniel A. & Hermanson, Dana R., 2019. "How do restatements affect outside directors and boards? A review of the literature," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 19-46.
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    5. Bilal, & Chen, Songsheng & Komal, Bushra, 2018. "Audit committee financial expertise and earnings quality: A meta-analysis," Journal of Business Research, Elsevier, vol. 84(C), pages 253-270.

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