Investigating the Relationship Between Audit Committee Characteristics and Internal Control Effectiveness

Posted: Dec 16, 2024

• Ethan Adams
• Ethan Gonzalez
• Ethan Torres

Abstract

The effectiveness of internal controls represents a cornerstone of corporate governance and financial reporting integrity. Traditional research in accounting and corporate governance has extensively examined the relationship between audit committee characteristics and internal control quality, predominantly employing linear statistical models that assume straightforward, direct relationships between governance variables. However, these conventional approaches often fail to capture the complex, non-linear interdependencies and threshold effects that characterize real-world corporate governance dynamics. This research introduces a paradigm shift in methodological approach by applying quantum-inspired computational techniques to unravel the intricate relationships between audit committee attributes and internal control effectiveness. Our investigation addresses several critical gaps in existing literature. First, we challenge the assumption of linearity in governance relationships by demonstrating that the influence of audit committee characteristics on internal control quality follows complex, non-monotonic patterns. Second, we move beyond traditional quantitative metrics by incorporating qualitative dimensions of committee functioning derived through advanced natural language processing of meeting minutes and disclosures. Third, we introduce a novel computational framework that can identify synergistic interactions between different committee attributes that conventional methods typically overlook.