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Sarbanes-Oxley and the Need for Audit Committee Independence: Contrary Evidence in the Textile Industry

Advances in Business Research

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Title Sarbanes-Oxley and the Need for Audit Committee Independence: Contrary Evidence in the Textile Industry
 
Creator Cardwell, Paula; Elon University
Sennetti, John; Nova Southeastern University
Poulson, Linda; Elon University
 
Subject Business; Accounting; Management;
Sarbanes-Oxley; Audit; Textile;
 
Description We investigate whether the appearance of audit committee independence, e.g., outside membership as defined by the Sarbanes-Oxley Act of 2002 (SOA), is necessarily related to effective independence, e.g., the audit committee’s support of an auditor’s going-concern opinion (Carcello and Neal 2003; 2000). The SOA makes the agency theory assumption, generally supported by current research, that seemingly non-independent audit committee members reduce the reliability of the financial reporting. Yet, prior to the SOA, other rulings permitted non-independent audit committee members to serve when it was “in the best interests of the firm,” and even the Carcello and Neal (2000) findings point to a possible industry or company-size effect in measuring audit committee effectiveness. It seems that manager-owner committee members of smaller companies may also do the right thing. Therefore, we reconsider this independence question for the textile industry, one severely stressed and possibly affected by firm size. We observe seventy-four companies during the years 2000 and 2001 when the SOA was not in effect to determine whether their non-dependent-appearing audit committees also would effectively act independent, without the constraint of the SOA. We do find at least two SOA non-independent characteristics of audit committees, what would be two apparent SOA violations in 2011, contrarily associated with two actions of effective independence. We do not find any one of the ten recommended SOA requirements correlated with these actions of effective independence. These findings suggest that measures of effective independence may not necessarily be related to appearance, and may instead depend on company or industry size, adding to the growing body of research that argues for restricting government financial regulation (Gao et al., 2009; Hayes, 2009; Hart, 2009; Dodd–Frank Wall Street Reform and Consumer Protection Act, 2010; Orol, 2011).
 
Publisher Tarleton State University and the University of Arkansas - Fort Smith
 
Contributor —
 
Date 2011-12-31
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Articles
Quantitative/Archival;
 
Format application/pdf
 
Identifier http://journals.sfu.ca/abr/index.php/abr/article/view/62
 
Source Advances in Business Research; Vol 2, No 1 (2011); 179-193
 
Language eng
 
Relation http://journals.sfu.ca/abr/index.php/abr/article/view/62/44
 
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