An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Gopal Krishnan
George Mason University

Gnanakumar Visvanathan
George Mason University

Abstract: The Sarbanes-Oxley Act mandates the disclosure on whether at least one member of the audit committee is a financial expert. However, the final version of the rule adopted by the SEC defined experts to include both accounting and non-accounting experts. 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 audit committee’s financial expertise is positively associated with conservatism only when financial expertise is defined to include 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. Our findings have implications for regulators, corporate boards, and the accounting profession.

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