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

49 Pages Posted: 10 Mar 2010 Last revised: 13 Jun 2013

Jeffrey R. Cohen

Boston College - Department of Accounting

Udi Hoitash

Northeastern University - Accounting Group

Ganesh Krishnamoorthy

Northeastern University

Arnold Wright

Northeastern University - Accounting Group

Date Written: May 2013

Abstract

Calls from practice suggest that audit committee members with industry expertise can improve audit committee effectiveness. Nevertheless, regulators and 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 non-audit 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.

Keywords: Corporate governance, Industry expertise, Financial expertise, Audit committees, Restatements, Discretionary accruals, Audit fees, Non-audit fees

Suggested Citation

Cohen, Jeffrey R. and Hoitash, Udi and Krishnamoorthy, Ganesh and Wright, Arnold, The Effect of Audit Committee Industry Expertise on Monitoring the Financial Reporting Process (May 2013). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1567453 or http://dx.doi.org/10.2139/ssrn.1567453

Jeffrey R. Cohen (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Ganesh Krishnamoorthy

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
617-373-4651 (Phone)
617-373-8814 (Fax)

Arnold Wright

Northeastern University - Accounting Group ( email )

406 Hayden Hall
United States

Paper statistics

Downloads
1,495
Rank
8,889
Abstract Views
4,378