Does Audit Committee Accounting Expertise Help to Safeguard Auditor Independence?

• In Event: Auditor and Audit Committee Independence

Abstract

In this study, we examine whether greater accounting expertise among audit committee members helps safeguard auditor independence by encouraging auditors to be forthcoming in providing an adverse internal control opinion when a material weakness likely exists and by reducing the likelihood of auditor dismissal following such an opinion. Among clients with an existing material weaknesses in internal controls, we find a greater likelihood of an adverse internal control audit opinion and a lower likelihood of subsequent auditor dismissal following an adverse internal control audit opinion when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Importantly, we find similar results when limiting the sample to observations where the CEO likely wields greater influence over the audit committee. These findings have important implications for corporate nominating committees choosing board members that will serve on the audit committee, especially in light of recent research suggesting that greater CEO influence over the audit committee can reduce audit committee effectiveness.

Authors

• Timothy Andrew Seidel, Brigham Young University

• Ling Lisic, George Mason University

• Linda Ann Myers, University of Tennessee Konxville

• Jian Zhou, University of Hawaii-Manoa