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Do Auditors Price Audit Ccommittee's Expertise? The Case Of Accounting vs. Non-Accounting Financial Experts
Gopal V Krishnan, George Mason University
Gnanakumar Visvanathan, George Mason University
ABSTRACT. The issue of whether audit pricing reflects the risk of corporate governance failure is of fundamental interest to auditors, managers, and others. Auditors are expected to price corporate governance risk because it relates to the control risk and thus, the overall audit risk. This study examines the relation between audit fees and one aspect of effective governance, i.e., the expertise of the audit committee. Though the Sarbanes-Oxley Act mandates the disclosure of a financial expert, the SEC defined experts broadly to include non-accounting financial experts. Does audit pricing differentiate between accounting and non-accounting financial expertise? For a sample of S&P 500 firms, we find that after controlling for several governance and firm characteristics, audit pricing is negatively related to accounting expertise but not related to non-accounting financial expertise.
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