Issue Information ‐ TOC

• DOI: http://doi.org/10.1002/jcaf.22222
• Published date: 01 January 2017
• Date: 01 January 2017

VOLUME 28, NUMBER 2 • January/February 2017

The Journal of

Letter From the Editor

James B. Edwards

Features

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.

7

10

22