An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Yan Zhang
State University of New York at Binghamton

Jian Zhou
State University of New York at Binghamton

Nan Zhou
State University of New York at Binghamton

Abstract: In this paper we investigate the relation between audit committee quality, auditor independence, and the disclosure of internal control weaknesses after the enactment of the Sarbanes-Oxley Act. We begin with a sample of firms with internal control weaknesses and based on industry, size, and performance, match these firms to a sample of control firms without internal control problems. Our conditional logit analysis indicates that a relation exists between audit committee quality, auditor independence, and internal control weaknesses. Firms are more likely to be identified with an internal control weakness if their audit committees have less financial expertise or their auditors are more independent. They are also more likely to have an internal control weakness if their audit committees meet more frequently, they have changed their auditors within the last two years, or they engage in merger-and-acquisition or restructuring activities.

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