The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments

Posted: 7 Aug 2001

See all articles by Todd DeZoort

Todd DeZoort

University of Alabama - Culverhouse School of Accountancy

Steven Salterio

Queen's University - Smith School of Business

Abstract

Interest in audit committees as part of overall corporate governance has increased dramatically in recent years, with a specific emphasis on member independence, experience, and knowledge. This paper reports the results of a study investigating whether audit committee members' corporate governance experience and financial reporting and audit knowledge affect their judgments in auditor-corporate management conflict situations. A sample of 68 audit committee members completed an accounting policy dispute case and several knowledge and ability tests. The results indicate that, as expected, greater independent director experience and greater audit knowledge was associated with higher audit committee member support for an auditor who advocated a "substance over form" approach in the dispute with client management. Conversely, concurrent experience as a board director and a senior member of management was associated with increased support for management. Collectively, these findings have a number of implications for practice and research. The results provide justification for calls that audit committees be composed completely of independent directors. The results also support auditor concerns that varying knowledge levels lead to systematic differences in audit committee member judgments in disputes between auditors and management.

Keywords: Audit committees; Experience; Knowledge; Corporate governance; Auditor-corporate management conflict; Financial reporting oversight

JEL Classification: M49, G34

Suggested Citation

DeZoort, Todd and Salterio, Steven E., The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments. Auditing: A Journal of Practice & Theory, September 2001, Available at SSRN: https://ssrn.com/abstract=276690

Todd DeZoort

University of Alabama - Culverhouse School of Accountancy ( email )

Tuscaloosa, AL 35487
United States

Steven E. Salterio (Contact Author)

Queen's University - Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada
613-533-6926 (Phone)

HOME PAGE: http://smith.queensu.ca/faculty_and_research/faculty_list/salterio-steven.php

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