Audit Committee Financial Expertise, Corporate Governance and Accruals Quality: An Empirical Analysis

52 Pages Posted: 7 Jun 2006

See all articles by Dan S. Dhaliwal

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Vic Naiker

University of Melbourne - Faculty of Business and Economics

Farshid Navissi

Monash University

Date Written: May 2006

Abstract

Following the enactment of the Sarbanes Oxley Act 2002, US stock exchanges strongly advocate the presence of financial experts on audit committees. However, the ideal definition of financial expertise proves to be a controversial issue culminating with the stock exchanges adopting a wide scoped definition of financial expertise. Using this definition, prior studies have not provided consistent evidence of financial expertise positively influencing audit committee effectiveness. We investigate the association between three types of audit committee financial expertise (accounting, finance and supervisory expertise) and accruals quality. We find significant positive relation between accounting expertise and accruals quality, which is more pronounced in the presence of strong audit committee governance. The findings indicate that the current definition of financial expertise is too broad and any future refinements must focus on accounting expertise of the audit committee members.

Keywords: Audit committee, Accounting Expertise, Accruals quality

JEL Classification: M41, M43, M49, G34, G18, K22

Suggested Citation

Dhaliwal, Dan S. and Naiker, Vic and Navissi, Farshid, Audit Committee Financial Expertise, Corporate Governance and Accruals Quality: An Empirical Analysis (May 2006). Available at SSRN: https://ssrn.com/abstract=906690 or http://dx.doi.org/10.2139/ssrn.906690

Dan S. Dhaliwal (Contact Author)

University of Arizona - Department of Accounting (deceased)

Vic Naiker

University of Melbourne - Faculty of Business and Economics ( email )

198 Berkeley Street
Melbourne, Victoria, 3010
Australia

Farshid Navissi

Monash University ( email )

Building H, Caulfield Campus
Melbourne, Victoria 3142 Vic 3145
Australia
+61 405 664941 (Phone)

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