Paula Weller, lecturer, and Linda Poulson, associate professor, both in the Department of Accounting in the Martha and Spencer Love School of Business, recently published a paper titled, “Sarbanes-Oxley and the Need for Audit Committee Independence: Contrary Evidence in the Textile Industry.”
The paper, co-authored by John Sennetti, professor of accounting at Nova Southeastern University, appears in the 2011, Volume 2, Issue 1 of Advances in Business Research.
An abstract is provided below:
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. 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 some research 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. Our 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.