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

• In Event: Audit Committee Expertise and Responsibilities

Abstract

We examine whether information technology (IT) expertise on audit committees (ACs) impacts the reliability and timeliness of financial reporting, two important financial reporting characteristics. We find a positive association between AC IT expertise and the reliability and timeliness of financial reporting. Specifically, we find a reduction in the likelihood of material restatements and IT-related material weaknesses (which account for 55 percent of all reported material weaknesses) and more timely earnings announcements at firms with AC IT expertise. These findings are robust to controlling for other IT attributes, propensity score matching, propensity score weighting, and entropy balancing techniques. We also mitigate endogeneity concerns with evidence that our findings hold in a sub-sample of firms that all possess overall high-quality IT. Finally, a placebo analysis, falsification tests, and inclusion of industry-year or firm fixed effects support our assertion that the quality of financial reporting is significantly improved by the AC IT expert.

Authors

• Musaib Ashraf, University of Arizona-Tucson

• Paul N Michas, University of Arizona-Tucson

• Daniel Russomanno, University of Arizona-Tucson