Auditor Switches, Audit Committee Compensation and Financial Reporting Quality

• In Event: Monitoring and oversight
  In Paper Session: Monitoring and Oversight

Abstract

This study examines whether audit committee compensation affects oversight effectiveness under different types of auditor switches. Using a sample of 829 dismissal firms in U.S. during 2003-2012, we find that audit committee equity-based compensation is negatively associated with financial reporting quality, especially by firms downgrading to non-Big 4 auditors or switching within non-Big 4 auditors. These results suggest that impaired audit committee independence is the variable explaining the downward auditor switches after SOX.

Author

• Yu Chun Lin, Shih Hsin University