Audit Committee Members and Restatement-Related Litigation Risk

44 Pages Posted: 20 May 2015

See all articles by Chris E. Hogan

Chris E. Hogan

Michigan State University - Department of Accounting & Information Systems

Jaime J. Schmidt

University of Texas at Austin

Anne Thompson

University of Illinois at Urbana-Champaign

Date Written: May 19, 2015

Abstract

This study investigates factors associated with restatement-related litigation against U.S. audit committee members. Using a sample of restatement-related litigation in the U.S. over the period 1999-2012, we find that the likelihood of audit committee litigation is higher in the post-SOX time period when financial reporting and auditor oversight responsibilities were significantly increased. This finding suggests that increased legal liability post-SOX could reduce the pool of qualified candidates willing to serve on the audit committee. We find that directors serving on the audit committee for a longer portion of the class action period and those with net insider selling activity during the class action period are more likely to be named as defendants. However, audit committee chairs, financial experts, and audit committee members serving on the compensation committee are no more likely to be named as defendants than other audit committee members, contrary to the perceptions of many officers and directors. Overall, our study provides insights into when audit committee members face higher litigation risk and useful information for the recruitment and retention of audit committee members.

Keywords: audit committee members, audit committee litigation, financial statement restatements, financial expertise

JEL Classification: K22, K41, M40, M48

Suggested Citation

Hogan, Chris E. and Schmidt, Jaime J. and Thompson, Anne, Audit Committee Members and Restatement-Related Litigation Risk (May 19, 2015). Available at SSRN: https://ssrn.com/abstract=2608194 or http://dx.doi.org/10.2139/ssrn.2608194

Chris E. Hogan (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Jaime J. Schmidt

University of Texas at Austin ( email )

Austin, TX 78712
United States

Anne Thompson

University of Illinois at Urbana-Champaign ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States

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