Audit Committee Report Voluntary Disclosure and Accounting Quality

• In Event: Financial Accounting and Reporting 2

Abstract

This exploratory study intends to address two issues: whether or not firms have improved audit committee report voluntarily since the Sarbanes-Oxley Act of 2002 (SOX) and whether or not more extensive disclosure in audit committee indicates better accounting quality.
Comparing audit committee report from 2003 and 2013 for one hundred random S&P 500 firms, I find that overall voluntary disclosure of audit committee report has not improved since SOX. On the contrary, on average, firms choose to disclose significantly less information in their audit committee report in 2013 compared to 2003. Further investigation into the details of voluntary disclosure reviews an encouraging trend. There are more firms disclose audit committee’s oversight responsibility on external auditor and internal control system in 2013 than that in 2003.
Using accrual quality and restatement frequency as proxy for accounting quality, I find that firms voluntarily disclose audit committee’s oversight responsibility over external auditor and internal control system are associated with higher accounting quality than those that choose not to disclose this information. There is also preliminary evidence that firms increased their voluntary disclosure with regard to audit committee’s responsibility over external auditor and internal control system improved their accounting quality from 2003 and 2013; while firms that decreased disclosure in these categories experienced deteriorating accounting quality.

Author

• X.Gloria Liu, John Carroll University