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Presentation
Does the Presence of Highly Compensated General Counsel Affect Audit Effort and Audit Outcomes in the Post-SOX Era?
2015 American Accounting Association Annual Conference (2015)
  • Stephanie Hairston, Georgia Southern University
  • Ji Woo Ryou, The University of Texas-Pan American
Abstract
General counsel are commonly involved in important and complex business transactions, and thus have a direct impact on financial reporting quality and financial disclosures. These factors directly influence the probability of audit failure, and thus the litigation risk faced by external auditors. However, prior literature (to the best of our knowledge) has not examined how external auditors respond to the presence of highly compensated general counsel. This study examines the relationship between the external audit market and firms with highly compensated GC. We find that highly compensated general counsel is positively associated with audit quality, and that firms with highly compensated general counsel are less likely to receive unqualified audit opinions and more likely to report material weaknesses in internal controls than firms without general counsel. We also find that although firms with highly compensated GC are more likely to engage Big 4 auditors, they are less likely to engage industry specialists, which suggests that these firms attempt to reduce the scrutiny of their auditors given their avoidance of specialists. These findings suggest that highly compensated general counsel do not serve as monitors and allow management to engage in aggressive financial reporting. We discuss the implications of our results for auditors, firm managers, and investors.
Keywords
  • Audit Quality,
  • Audit Outcomes,
  • General counsel,
  • Audit failure
Disciplines
Publication Date
August 10, 2015
Location
Chicago, IL
Citation Information
Stephanie Hairston and Ji Woo Ryou. "Does the Presence of Highly Compensated General Counsel Affect Audit Effort and Audit Outcomes in the Post-SOX Era?" 2015 American Accounting Association Annual Conference (2015)
Available at: http://works.bepress.com/stephanie-hairston/3/