Issue Information ‐ TOC

Published date01 January 2017
Date01 January 2017
VOLUME 28, NUMBER 2 • January/February 2017
The Journal of
Letter From the Editor
James B. Edwards
The Internal Audit Function: A Prerequisite for Good Governance
Cecily Raiborn, Janet B. Butler, Kasey Martin, and Mina Pizzini
In 2013, the NASDAQ Stock Market LLC (NASDAQ) filed a proposal with the Securities
and Exchange Commission (SEC) to require NASDAQ-listed companies to establish and
maintain an internal audit (IA) function (SEC, 2013b). Comment letters received on the pro-
posal were overwhelmingly negative. The top three reasons against the proposal were cost
of implementation, time commitments required of organizational employees, and redundan-
cy of IA to a firm’s external audit process. This article delineates differences between internal
and external audit responsibilities, identifies the benefits of internal auditing, highlights the role
that internal auditors play in corporate governance and risk management, demonstrates how
IA assurance and consulting activities add organizational value, and discusses cost-effective
options for implementing an IA function.
Culture, Capital Structure, and Implications for Accounting Regulation
Andrew A. Anabila and Eunyoung Whang
We examine culture as a determinant of capital structure. Our motivation is twofold. First
is to contribute to the literature on the determinants of capital structure, which is currently
replete with mixed findings. Second is to explore accounting policy implications. Our mea-
sure for capital structure is leverage, the debt-to-assets ratio. Using Hofstede’s dimensions
of culture, we compute SECRECY, a measure of secretiveness shown to be associated with
information asymmetry and risk aversion. We use 284,158 firm-years from 46 countries over
the fiscal years 1990 through 2009. Our methodology controls for determinants of capital
structure identified in prior research and is robust to clustering by years and countries. We
find that leverage is positively associated with SECRECY, consistent with the behavior of
managers and investors under information asymmetry and risk aversion. We examine the
implications of SECRECY and leverage for capital market initiatives, specifically GAAP evolu-
tion, whose primary objective is to mitigate information asymmetry. The analysis reveals a
conflict of disclosure interests between the firm and lenders, especially in secretive cultures.

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