The Association Between Accruals Quality and the Characteristics of Accounting Experts and Mix of Expertise on Audit Committees

By Dan S. Dhaliwal, Vic Naiker, F. Navissi. 2010

648 citations recorded by the source corpus.

Prior literature suggests a positive relationship between financial reporting quality and the presence of accounting experts on audit committees. This study investigates the association between accruals quality and the characteristics of accounting experts and mix of accounting and non-accounting (finance and supervisory) expertise on audit committees. Using post-SOX data, our results indicate a positive relationship between accruals quality and audit committee accounting experts who are independent, hold fewer multiple directorships, and have lower tenure in their firms. Furthermore, the results suggest that the most positive effect of accounting expertise on accruals quality is achieved when accounting expertise is combined with finance expertise in audit committees. Supervisory expertise, on the other hand, seems to have no incremental impact on the effectiveness of audit committees that include accounting and finance expertise. The findings highlight the contextual nature of accounting expertise in overseeing the quality of financial reporting.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/990c1bb1a695126d09f88f8fa301636b4fcfb3d2

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Citations in the corpus

Corporate Governance, Integrated Reporting and the Use of Credibility-enhancing Mechanisms on Integrated Reports (2019, background): “…more frequently, have more ﬁnancial accounting experts, and more members are associated with stronger governance and more effective in ensuring the quality and credibility of the corporate reporting process (Abbott et al., 2003; Dhaliwal et al., 2010; Lee & Park, 2018; Pomeroy & Thornton, 2008).”
Audit Committees and Financial Reporting Quality in Singapore (2015, methodology): “21 US firms in Dhaliwal et al. (2010), indicating that Singapore firms are still behind their counterparts in the US in terms of audit committee independence.”
The Impact of Audit Committee Financial Expertise on Management Discussion and Analysis (MD&A) Tone (2019, methodology): “Similarly, Dhaliwal, Naiker, and Navissi (2010) and Cohen, Hoitash, Krishnamoorthy, and Wright (2014) document that the positive effect of having a financial expert on the audit committee on financial reporting quality is particularly pronounced when the expert has accounting financial expertise.4…”
The Impact of Audit Committee Characteristics on Corporate Voluntary Disclosure (2014, background): “Hence, effective AC results in the enhancement of financial reporting process and thus reducing information asymmetry between management and stakeholders (Dhaliwal et al., 2010; Li et al., 2012).”
Independent audit committee characteristics and real earnings management (2014, background): “Overall, audit committees of our sample firms have similar size, longer average board tenure and lower additional directorships compared to Dhaliwal et al. (2010). Table III presents variance inflation factors for all independent variables.”
Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality (2016, background): “20 Other research implying that better audit outcomes accompany accounting-related financial expertise on the audit committee includes Krishnan (2005), Krishnan and Visvanathan (2008), and Dhaliwal et al. (2010).”
Audit committee financial expertise, gender, and earnings management: Does gender of the financial expert matter? (2018, background): “experience in preparing and auditing financial statements and accounting for accruals, estimates, and reserves (Dhaliwal et al., 2010). Beasley, Carcello, Hermanson, & Neal (2009) note that one of the most crucial requirements for serving on the AC is that the directors possess financial expertise. ”
Audit Committee Financial Expertise and Earnings Management: The Role of Status (2014, methodology): “…expertise limits “routine” earnings management as measured by accrual-based variables, including lower abnormal accruals and higher accrual quality, as well as more conservatism (Bédard et al., 2004; Carcello et al., 2006; Dhaliwal et al., 2010; Krishnan and Visvanathan, 2008; Xie et al., 2003).”