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The impact of audit committee expertise on auditor resources: the case of Israel

  • Omer Berkman
  • Shlomith D. ZutaEmail author
Original Research
  • 36 Downloads

Abstract

We investigate the association between internal audit resources and both audit committee financial expertise and independence using hand-collected data on firms traded on the Tel Aviv Stock Exchange in 2010–2014. This period follows the full implementation of SOX (and a similar regulation in Israel), a law that increased the burden of responsibility of audit committee members. Since expertise allows for a better appreciation of the risks inherent in the firm’s operations and the appropriate audit scope, we believe that expert committee members are more likely to require additional audit hours. Thus, we expect and document a significant and positive association between internal audit resources and audit committee expertise. This relation contrasts with the findings in Barua et al. (J Acc Public Pol 29(5):503–513, 2010), a study conducted on data gathered in the midst of the implementation of SOX. However, we fail to find any significant association between internal audit resources and audit committee independence. Our paper is the first to use publicly available data on internal audit resources, based on mandatory disclosures that are required in Israel but not in the US. Our analysis is thus not subject to non-response and self-selection biases existing in previous studies using survey data. Moreover, our study uses the number of hours worked by internal audit, a more direct measure of internal audit effort than budget or number of employees.

Keywords

Audit committee Internal audit Audit committee independence Audit committee financial expertise Corporate governance Board of directors 

JEL Classification

G34 G38 G42 

Notes

Acknowledgements

We wish to thank Kose John, April Klein, Avri Ravid and Avi Wohl for very helpful feedback and advice. We are indebted to John Wald for invaluable help. Research assistantship by Omri Zuckerstein is appreciated. We would also like to thank Yossi Ginossar and Doron Cohen of Grant Thornton, Israel and Kobi Avramov of Tel Aviv Stock Exchange for useful information. We acknowledge the financial support from the Academic College of Tel-Aviv Yaffo. Finally, we are grateful to an anonymous referee for insightful comments which improved the paper significantly.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.The Academic College of Tel-Aviv YaffoTel AvivIsrael

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