The mounting attention given to audit committees following a series of corporate financial reporting failures has resulted in numerous provisions within Sarbanes Oxley Act (SOX hereafter) of 2002. The SOX addresses aspects of the audit committee, including its authority and composition characteristics, but the requirement for minimum meeting frequency for the audit committee member was absent from the final SOX provision despite the recommendations of regulators. Since audit committee activity, or degree of audit committee diligence, is determined by the audit committee itself, we investigate various firm-level and governance attributes that likely influence audit committees choice to meet more often than anticipated. After analyzing a sample of 2,715 firm-year observations spanning fiscal years 1998-2003, we find that audit committee diligence is positively associated with audit committee attributes such as financial expertise, but negatively association with audit committee tenure, suggesting that efficiency gains are enjoyed by audit committees as they become more familiar with firm-specific reporting issues. We also document positive associations between audit committee diligence and both governance and agency cost variables. Finally, we document a significant increase in audit committee diligence in the years following the implementation of the SOX 2002 provisions.
Empirical research to date has neglected accounting and external financial reporting among 18th century American charitable institutions. Contemporary understanding of 18th century American practices is supported by evidence relating to commercial transactions primarily among colonial merchants. Our study examines the accounting and financial reporting of the Charleston Orphan House, the first municipal orphanage in America, from its inception in 1790 through its first five years of operations. The institution was established by city ordinance in 1790 which required the institution “to keep a book of fair and regular accounts of all receipts and expenditures which will be subject at all times to the inspection of the Commissioners.” The ordinance charged the orphanage's Committee on Accounts to “audit” its accounts. The City Council required the institution's board chairman to countersign the financial statements in 1792 before subjecting them to a second “audit.” The Orphan House employed a system of account books that recorded and facilitated the reporting of expenditures and sources of funds. Accounting and external reporting may have been legitimizing factors to overcome the “liability of newness” by promoting a sense of propriety and transparency among benefactors.“I visited the Orphan House at which there were one hundred and seven boys and girls. This appears to be a charitable organization and under good management.”[President George Washington, diary entry, Saturday, May 7, 1791]
<p class="MsoBlockText" style="margin: 0in 0.5in 0pt;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;"><span style="font-style: normal; mso-bidi-font-style: italic;">The authors examine the relationship between interest cost to the issuer of municipal bonds and legal counsel associated with the offering. Modeling interest cost with explanatory variables reflecting legal counsel, issue characteristics, and conditions in the financial markets, the authors conclude that offerings in which an active bond counsel participated had average interest costs statistically significantly lower than those without such counsel. Offerings involving issuer</span><span style="font-style: normal; font-family: "WP TypographicSymbols"; mso-bidi-font-style: italic; mso-ascii-font-family: 'Times New Roman'; mso-hansi-font-family: 'Times New Roman'; mso-char-type: symbol; mso-symbol-font-family: 'WP TypographicSymbols';"><span style="mso-char-type: symbol; mso-symbol-font-family: 'WP TypographicSymbols';">=</span></span><span style="font-style: normal; mso-bidi-font-style: italic;">s counsel and activity of underwriter</span><span style="font-style: normal; font-family: "WP TypographicSymbols"; mso-bidi-font-style: italic; mso-ascii-font-family: 'Times New Roman'; mso-hansi-font-family: 'Times New Roman'; mso-char-type: symbol; mso-symbol-font-family: 'WP TypographicSymbols';"><span style="mso-char-type: symbol; mso-symbol-font-family: 'WP TypographicSymbols';">=</span></span><span style="font-style: normal; mso-bidi-font-style: italic;">s counsel experienced statistically higher average interest costs than otherwise. The authors note that their results are consistent with the certification hypothesis.</span></span></span></p>
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