Professional Diversity of the Audit Committee and the Effect on the Financial Reporting Process

• In Event: Corporate Governance / Auditor Response to Corruption Culture

Abstract

This study examines the influence of audit committee professional diversity on the committee’s effectiveness. Using U.S. company-year observations from 2003 to 2013, the results show a positive association between the professional diversity of the audit committee and financial reporting oversight, measured alternately as reduced financial statement misstatements, material weakness disclosures, or consecutive material weakness disclosures. Moreover, connections to another professionally diverse audit committee reduce the likelihood of financial statement misstatements and material weakness disclosures. These results suggest that professional diversity benefits audit committee effectiveness to a point, but that too much diversity might result in tension among audit committee members and limit the benefits of diversity.

Author

• Kathleen Harris, Washington State University