Does the SOX definition of an accounting expert matter? The association between audit committee directors' accounting expertise and accounting conservatism

• 成果类型: Article
• 署名作者: Krishnan, Gopal V.; Visvanathan, Gnanakumar
• 署名单位: Lehigh University; George Mason University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/car.25.3.7
• 发表日期: 2008
• 页码: 827-+
• 关键词: value financial expertise; corporate governance; earnings management; INTERNAL CONTROL; QUALITY; BOARD; determinants; Timeliness; experience; KNOWLEDGE

摘要

The Sarbanes-Oxley Act mandates the disclosure of whether at least one member of the audit committee is a financial expert. However, the final version of the rule adopted by the Securities and Exchange Commission (SEC) defined experts to include both accounting and nonaccounting experts. Did the SEC do the right thing? Are the nonaccounting experts just as competent as the accounting experts in enhancing the quality of financial reporting? For a sample of S&P 500 firms, we examine whether the audit committee's financial expertise is associated with accounting conservatism, a fundamental characteristic of financial reporting. Our results suggest that an audit committee's financial expertise is positively associated with conservatism when financial expertise is defined to include only accounting experts. Our findings are consistent with the notion that accounting expertise contributes to greater monitoring by the members of the audit committee, which in turn enhances conservatism. However, this finding is conditional upon the firm's overall corporate governance - that is, in weak boards, accounting financial expertise is ineffective in promoting conservative accounting. Our findings have implications for regulators, corporate boards, and the accounting profession. Our findings are also relevant to regulators in other countries who are considering adopting measures to enhance corporate governance, particularly the effectiveness of audit committees.