Does Audit Committee Accounting Expertise Help to Promote Audit Quality? Evidence from Auditor Reporting of Internal Control Weaknesses

56 Pages Posted: 10 Apr 2017 Last revised: 10 Jan 2019

See all articles by Ling Lei Lisic

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Timothy A. Seidel

Brigham Young University

Jian Zhou

University of Hawaii at Manoa

Date Written: November 1, 2018

Abstract

In this study, we examine whether audit committee accounting expertise helps to promote audit quality by motivating auditors to conduct diligent internal control audits and make appropriate internal control assessments because audit committee accounting expertise safeguards auditors from dismissal following adverse internal control opinions. Among clients with existing and likely internal control material weaknesses (as proxied by future restatements of audited financial statements), we find a greater likelihood of adverse internal control audit opinions when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Among all clients, we find a lower likelihood of subsequent auditor dismissal following an adverse internal control audit opinion when the audit committee has greater accounting expertise. In further analyses, we find that this lower likelihood of subsequent auditor dismissal occurs when at least two audit committee members possess accounting expertise. We also find some evidence that chief financial officer influence (but not chief executive officer influence) over the audit committee negates the increased likelihood of adverse internal control opinions when internal control material weaknesses likely exist as well as the decreased likelihood of auditor dismissal following adverse internal control opinions. These findings have important implications for regulators and corporate nominating committees interested in promoting audit committee effectiveness.

Keywords: Audit Committee, Accounting Expertise, Internal Control, Auditor Dismissal

JEL Classification: M41, M42

Suggested Citation

Lisic, Ling Lei and Myers, Linda A. and Seidel, Timothy A. and Zhou, Jian, Does Audit Committee Accounting Expertise Help to Promote Audit Quality? Evidence from Auditor Reporting of Internal Control Weaknesses (November 1, 2018). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2948134 or http://dx.doi.org/10.2139/ssrn.2948134

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Timothy A. Seidel (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States

Jian Zhou

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

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