Audit Committee Oversight and Financial Reporting Reliability: Are Audit Committees Overloaded?

52 Pages Posted: 13 Aug 2019 Last revised: 16 Mar 2020

See all articles by Musaib Ashraf

Musaib Ashraf

University of Arizona, Department of Accounting

Preeti Choudhary

University of Arizona, Eller College of Management

Jacob Jaggi

University of Arizona

Date Written: March 13, 2020

Abstract

We examine the relation between audit committee (AC) responsibilities and financial reporting reliability. AC responsibilities have increased over time, prompting concerns that overloading ACs with duties unrelated to core financial reporting oversight may impair financial reporting. Using new AC charter-based proxies to measure AC responsibilities, we find that allocating non-core responsibilities to the AC is associated with reduced financial reporting reliability. This association is exacerbated when AC members are busy with multiple board appointments and ameliorated when ACs have more members to execute duties. In contrast, we find that having more core financial reporting-related AC responsibilities is associated with improved financial statement reliability; this association persists even when ACs have very high levels of reporting-related responsibilities. Collectively, our evidence suggests that non-core duties overload ACs and harm reporting reliability but increasing AC duties related to financial reporting does not appear to overload ACs nor detract from financial reporting reliability.

Keywords: Corporate governance, Audit committees, Restatements, Monitoring, Financial reporting quality

JEL Classification: G30, G34, G38, M41

Suggested Citation

Ashraf, Musaib and Choudhary, Preeti and Jaggi, Jacob, Audit Committee Oversight and Financial Reporting Reliability: Are Audit Committees Overloaded? (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3433389 or http://dx.doi.org/10.2139/ssrn.3433389

Musaib Ashraf

University of Arizona, Department of Accounting ( email )

Tucson, AZ
United States

Preeti Choudhary (Contact Author)

University of Arizona, Eller College of Management ( email )

School of Accountancy
Tucson, AZ 85721
United States

Jacob Jaggi

University of Arizona ( email )

Tucson, AZ 85721
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
96
Abstract Views
430
rank
285,826
PlumX Metrics