The Effect of Audit Committee Industry Expertise on Monitoring the Financial Reporting Process

ABSTRACT Calls from practice suggest that audit committee members with industry expertise can improve audit committee effectiveness. Nevertheless, regulators and the extant literature have focused on the financial expertise of the audit committee. We posit that audit committee industry knowledge is valuable because accounting guidance, estimates, and oversight of the external auditor are often linked to a company's operations within a particular industry. Taking a holistic view, we examine two measures of financial reporting quality (financial restatements and discretionary accruals) and two measures of external auditor oversight (audit and nonaudit fees). As predicted, we find that audit committee members who are both accounting and industry experts perform better than those with only accounting expertise. We also find that in certain instances, supervisory experts who are also industry experts perform better than supervisory experts alone. Overall, these results suggest that industry expertise, when combined with accounting expertise, can improve the effectiveness of the audit committee in monitoring the financial reporting process. Data Availability: All data are gathered from publicly available sources.

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The effect of audit committee characteristics on compliance with IFRS for related party disclosures

Managerial Auditing Journal ◽

10.1108/maj-06-2016-1395 ◽

2017 ◽

Vol 32 (6) ◽

pp. 603-626 ◽

Cited By ~ 16

Author(s):

Yosra Mnif Sellami ◽

Hela Borgi Fendri

Keyword(s):

Financial Reporting ◽

Audit Committee ◽

Stock Exchange ◽

Empirical Studies ◽

Consolidated Financial Statements ◽

Content Type ◽

Johannesburg Stock Exchange ◽

Panel Regressions ◽

Accounting Expertise ◽

Industry Expertise

Purpose The purpose of this paper is to examine the effect of audit committee (AC) characteristics (size, independence, the number of meetings and expertise) on compliance with International Financial Reporting Standards (IFRS) for related party disclosures (CRPD) in the South African context. Design/methodology/approach This paper is based on an analysis of the consolidated financial statements of 120 non-financial firms listed on the Johannesburg Stock Exchange (JSE) for the period 2012 to 2014. Panel regressions have been used. Findings The findings of this paper reveal that CRPD is positively influenced by AC independence. However, AC size and the number of AC meetings do not affect CRPD. Regarding expertise, the authors find that there is a positive and significant relationship between CRPD and have combined industry expertise with accounting and financial expertise. However, while accounting expertise by itself is associated with CPRD, industry expertise by itself is not associated with CRPD. Originality/value To the best of the authors’ knowledge, there are no empirical studies that have addressed the effect of AC characteristics on compliance with IFRS for CRPD.

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Shareholder Elections of Audit Committee Members

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-51899 ◽

2017 ◽

Vol 37 (4) ◽

pp. 143-167 ◽

Cited By ~ 6

Author(s):

Ronen Gal-Or ◽

Rani Hoitash ◽

Udi Hoitash

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Audit Committee ◽

Board Members ◽

Past Work ◽

Reporting Process ◽

Nominating Committees ◽

Accounting Expertise ◽

Governance Choices

SUMMARY Voting in directors' elections is one of few mechanisms by which shareholders can influence corporate governance choices. We study elections of directors who serve on the audit committee (AC), a topic receiving little attention in past work. Our results show that AC members, especially those who do not serve on the compensation or nominating committees, receive greater shareholder support than other independent board members. We further find that among AC members, more qualified members, in terms of accounting expertise, receive greater support, while AC chairs without such expertise receive lower support. In addition, when the AC is less effective in monitoring the financial reporting process, its members receive lower shareholder approval, while other independent board members are less affected by these same financial reporting factors. Finally, when the AC is less effective, all of its members receive lower support, irrespective of their expertise or position within the committee.

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Audit Committee Members’ Reputation Incentives and Their Effectiveness in Monitoring the Financial Reporting Process

Abacus ◽

10.1111/abac.12201 ◽

2020 ◽

Vol 56 (3) ◽

pp. 348-406

Author(s):

Eunice S. Khoo ◽

Youngdeok Lim ◽

Gary S. Monroe

Keyword(s):

Financial Reporting ◽

Audit Committee ◽

Reporting Process

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Corporate Social Responsibility, Audit Committee Expertise, and Financial Reporting: Empirical Evidence from Korea

Sustainability ◽

10.3390/su131910517 ◽

2021 ◽

Vol 13 (19) ◽

pp. 10517

Author(s):

Haeyoung Ryu ◽

Soo-Joon Chae ◽

Bomi Song

Keyword(s):

Corporate Social Responsibility ◽

Social Responsibility ◽

Financial Reporting ◽

Audit Committee ◽

Earnings Quality ◽

Audit Committees ◽

Accounting Expertise ◽

Corporate Social

Corporate social responsibility (CSR) involves multiple activities and is influenced by the cultural and legal environment of the country in which a firm is located. This study examines the role of audit committees’ (AC) financial expertise in the relationship between CSR and the earnings quality of Korean firms with high levels of CSR. Using a multivariate analysis, it investigates whether the ACs that include members with accounting expertise, finance expertise, or supervisory expertise individually affect a firm’s decision making. It also examines how ACs with diverse expertise contribute toward improving the financial reporting quality of firms with high levels of CSR. The results demonstrate that when there is a certified accountant in the AC of a firm that practices CSR based on ethical motivation, the earnings management through discretionary accruals is more strictly controlled. This is more effective when the AC comprises members with accounting and non-accounting expertise. This finding implies that the AC plays a positive role in improving the accounting information quality of firms with CSR excellence. Moreover, while the role of accounting experts in the AC is important for maintaining high earnings quality, combining other types of expertise creates synergy.

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Exploring the Strategic Integration of Sustainability Initiatives: Opportunities for Accounting Research

Accounting Horizons ◽

10.2308/acch-50088 ◽

2012 ◽

Vol 26 (2) ◽

pp. 265-288 ◽

Cited By ~ 93

Author(s):

Brian Ballou ◽

Ryan J. Casey ◽

Jonathan H. Grenier ◽

Dan L. Heitger

Keyword(s):

Financial Reporting ◽

Corporate Responsibility ◽

Risk Identification ◽

Data Availability ◽

Strategic Integration ◽

Consulting Firms ◽

Independent Review ◽

Research Questions ◽

Sustainability Initiatives ◽

Accounting Expertise

SYNOPSIS We report the results of a survey of 178 corporate responsibility officers designed to explore how accountants can add value to sustainability initiatives. Specifically, we examine how three areas of accounting expertise (risk identification and measurement, financial reporting, and independent review/assurance) contribute to the strategic integration of sustainability initiatives (cf. Porter and Kramer 2006; IIRC 2011). Our results indicate that accounting professionals are rarely involved in sustainability initiatives, but their involvement is highly associated with strategic integration. This finding suggests that increased involvement likely would provide significant benefits to organizations and their stakeholders. We use these and other important insights into a series of research questions for future accounting or interdisciplinary research in sustainability. These insights about accountants' ability to enhance the strategic integration of sustainability initiatives also should be of interest to accounting and consulting firms as they design and market their sustainability services. Data Availability: Data are available upon request.

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Integration of Internal Control and Financial Statement Audits: Are Two Audits Better than One?

The Accounting Review ◽

10.2308/accr-52197 ◽

2018 ◽

Vol 94 (2) ◽

pp. 53-81 ◽

Cited By ~ 10

Author(s):

Lori Shefchik Bhaskar ◽

Joseph H. Schroeder ◽

Marcy L. Shepardson

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Quality ◽

Internal Controls ◽

Data Availability ◽

Financial Statement ◽

Auditor Judgment ◽

Public Company ◽

Better Than

ABSTRACT The quality of financial statement (FS) audits integrated with audits of internal controls over financial reporting (ICFR) depends upon the quality of ICFR information used in, and its integration into, FS audits. Recent research and PCAOB inspections find auditors underreport existing ICFR weaknesses and perform insufficient testing to address identified risks, suggesting integrated audits—in which substantial ICFR testing is required—may result in lower FS audit quality than FS-only audits. We compare a 2007–2013 sample of small U.S. public company firm-years receiving integrated audits (accelerated filers) to firm-years receiving FS-only audits (non-accelerated filers) and find integrated audits are associated with higher likelihood of material misstatements and discretionary accruals, consistent with lower FS audit quality. We also find evidence of (1) auditor judgment-based integration issues, and (2) low-quality ICFR audits harming FS audit quality. Overall, results suggest an important potential consequence of integrated audits is lower FS audit quality. Data Availability: Data are publicly available from the sources identified in the text.

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Audit Committee Accounting Expertise, Analyst Following, and Market Liquidity

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x16663090 ◽

2016 ◽

Vol 33 (2) ◽

pp. 174-199 ◽

Cited By ~ 3

Author(s):

David B. Farber ◽

Shawn X. Huang ◽

Elaine Mauldin

Keyword(s):

Financial Reporting ◽

Trading Volume ◽

Audit Committee ◽

Audit Quality ◽

Reporting Quality ◽

Earnings Forecasts ◽

Market Liquidity ◽

Management Earnings Forecasts ◽

Analyst Following ◽

Accounting Expertise

We study the relation between audit committee accounting expertise, analyst following, and market liquidity. Our main results indicate that analyst following increases subsequent to the appointment of an accounting expert to the audit committee. We also provide evidence that accrual quality, as opposed to audit quality or management earnings forecasts, is the channel through which accounting expertise increases analyst following and improves analyst forecast properties. We also show that audit committee accounting expertise is related to higher trading volume and lower liquidity risk, supporting incentives for greater analyst following. Our study extends prior literature by providing evidence that audit committee accounting expertise enhances firms’ information environment beyond the effects it has on financial reporting quality or analysts’ forecast properties. Our study also complements the literature on determinants of analyst following and market liquidity, both of which are related to cost of capital. Results from our study should be useful to firms seeking to enhance analyst following and market liquidity.

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The Triangle Defense for Financial Reporting Quality: The Interplay between Internal Auditing, the Audit Committee, and the External Auditor

Wahana ◽

10.35591/wahana.v23i1.260 ◽

2020 ◽

Vol 23 (1) ◽

pp. 112-130

Author(s):

Djoko Susanto

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Audit Committee ◽

Academic Research ◽

Internal Audit ◽

Reporting Quality ◽

Financial Reporting Quality ◽

Working Relationships ◽

External Auditors ◽

External Auditor

The internal audit function, audit committee, and external auditor are three crucial stakeholders of corporate governance that safeguard the quality of financial reporting. In this article, I discuss the interrelationships between these monitoring mechanisms. I also provide insights about what we have learned from academic research about the working relationships between these three governance entities. This article should be of interest to academic researchers as well as to corporate stakeholders, which include management, investors, regulators, and Dewan Komisaris members. Future researchers can make use of this article as they contribute more work in areas related to auditing, monitoring and corporate governance, and financial reporting quality. Insights from this article can also guide corporate stakeholders to assess the effectiveness of the internal audit, audit committee, and external auditors in their organizations.

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Audit Committee and Earnings Management: The Role of Gender

Jurnal Akuntansi ◽

10.24912/ja.v23i3.603 ◽

2020 ◽

Vol 23 (3) ◽

pp. 379

Author(s):

Widya. A. Sudarman, Widi Hidayat

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Audit Committee ◽

Stock Exchange ◽

Risk Averse ◽

Gender Theory ◽

Reporting Process ◽

Selection Of

This study has a purpose to investigate the effect of committee audit on earnings management. Using a sampel of companies companies listed in Indonesia Stock Exchange (IDX) 2013-2017. Results of this study shows that gender of audit committee significantly effect earnings management, it explains that female on audit committee are more careful and allow for discretion in terms of financial reporting. The results explain gender theory that women are more risk averse and ethical than men. This research provides new insights for management so that they can consider gender in the selection of committee audit to be appointed by the company with regard to the financial reporting process.

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Determinants and Consequences of Quantitative Critical Accounting Estimate Disclosures

The Accounting Review ◽

10.2308/accr-52368 ◽

2019 ◽

Vol 94 (5) ◽

pp. 189-218 ◽

Cited By ~ 4

Author(s):

Matthew Glendening ◽

Elaine G. Mauldin ◽

Kenneth W. Shaw

Keyword(s):

Audit Committee ◽

Securities And Exchange Commission ◽

Data Availability ◽

Financial Reports ◽

The Public ◽

Estimation Uncertainty ◽

Earnings Surprises ◽

Accounting Expertise ◽

Insight Into ◽

Jel Classifications

ABSTRACT The Securities and Exchange Commission (SEC) recommends that firms provide MD&A disclosures quantifying the earnings effect of reasonably likely changes in critical accounting estimates (quantitative CAE). This paper examines the determinants and consequences of quantitative CAE. We find that quantitative CAE are negatively associated with management's incentives to misreport (proxied by portfolio vega) and positively associated with audit committee accounting expertise and with audit offices with multiple quantitative CAE clients. These findings hold for the presence, initiation, number, and magnitude of quantitative CAE, and for both pension and non-pension quantitative CAE. We also find that incidences of AAERs, misstatements, and small positive earnings surprises decrease after initiation of quantitative CAE. Collectively, our findings provide insight into the use of quantitative disclosure to inform users about accounting estimation uncertainty in financial reports. JEL Classifications: M41; M42; M48. Data Availability: Data are available from the public sources cited in the text.

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