Changes in internal controls and auditor effort around the initiation of a Chief Accounting Officer (CAO) position

I examine whether the addition of a Chief Accounting Officer (CAO) to the top management team improves firms' internal controls and allows a reduction in efforts by the firms' external auditors. I find firm size, auditor quality, and acquisition or restructuring activity significantly increases the likelihood of a firm having a CAO position. After controlling for factors associated with the decision to create the CAO position, I find that firms that establish a CAO position on their top management team improve their internal control system more than firms without a CAO position on their top management team. In addition, CAO firms realize a reduction in auditor fees following the addition of a CAO position on their top management team. Overall, these findings suggest that the introduction of a CAO position to the top management team substantively improves the quality of firms' internal control over financial reporting and a reduction in the auditors' assessment of the firms' control risk.