The Impact of Audit Committee Information Technology Expertise on the Reliability and Timeliness of Financial Reporting

Abstract

We examine whether information technology expertise on audit committees impacts the reliability and timeliness of financial reporting. We find a reduction in the likelihood of material restatements and information technology-related material weaknesses (which account for 55 percent of all reported material weaknesses), and more timely earnings announcements at firms with audit committee information technology expertise. These findings are robust to controlling for a firm’s other information technology attributes as well as when using entropy balanced samples, and we mitigate endogeneity concerns with evidence that our findings hold in a sub-sample of firms that all possess overall high-quality information technology. Finally, a difference-in-differences analysis, inclusion of firm fixed effects, and a falsification test largely support our assertion that the quality of financial reporting is significantly improved by the presence of an audit committee information technology expert.

Keywords: audit committee, board of directors, corporate governance, information technology, financial reporting reliability, financial reporting timeliness

JEL Classification: M41, M15