Are Judgments About Auditor Liability Influenced by Audit Committee Expertise and Independence?

38 Pages Posted: 22 May 2015

See all articles by Jillian Alderman

Jillian Alderman

Pepperdine University - Graziadio School of Business and Management

S. Jane (Kennedy) Jollineau

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Date Written: April 21, 2015

Abstract

The Sarbanes-Oxley Act (2002) required that firms disclose whether their audit committee has at least one independent financial expert. This study examines whether the independence and expertise of audit committee members lower the exposure of external auditors to legal liability. We use an experiment where potential jurors make judgments about auditor independence and legal liability for a case that involves an audit failure. We find that audit committee independence is associated with judgments of increased auditor independence and lower legal liability. However, exposure to legal liability is highest when audit committee financial expertise is high but independence from management is low, consistent with the perception that powerful audit committee members can use their influence opportunistically.

Keywords: Auditor independence, audit committee financial expert, audit committee independence, financial statement fraud and misstatements, audit failure, legal liability

JEL Classification: M4

Suggested Citation

Alderman, Jillian and Kennedy Jollineau, S. Jane, Are Judgments About Auditor Liability Influenced by Audit Committee Expertise and Independence? (April 21, 2015). Available at SSRN: https://ssrn.com/abstract=2608545 or http://dx.doi.org/10.2139/ssrn.2608545

Jillian Alderman (Contact Author)

Pepperdine University - Graziadio School of Business and Management ( email )

Malibu, CA
United States

S. Jane Kennedy Jollineau

Chapman University - The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA 92866
United States
206.227.7868 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/jane-jollineau

University of Washington - Foster School of Business ( email )

Seattle, WA 98195-3226
United States
206.227.7868 (Phone)

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