American Accounting Association

AUGUST 6-10, 2011  •  DENVER, COLORADO

Session Title: Audit Committees
Presentation Date: Wednesday August 10, 2011
Presentation Time: 10:15 am-11:45 am

Does Audit Committee Industry Expertise Affect the Likelihood of Financial Restatements?

Jeff Cohen, Boston College
Udi Hoitash, Northeastern University
Ganesh Krishnamoorthy, Northeastern University
Arnold Wright, Northeastern University

ABSTRACT: Calls from practice suggest that audit committees with industry expertise could improve the effectiveness of the audit committee. We posit that industry knowledge is expected to be valuable because such knowledge is likely to strengthen the monitoring ability of audit committee members. Using a restatements sample from 2001-2007, we find that both the breadth and depth of audit committee industry expertise is associated with a lower likelihood of restatements. We also find that while supervisory financial expertise alone does not significantly contribute to reducing the likelihood of restatements, the combination of supervisory financial expertise and industry expertise does. Overall, the findings provide further evidence on the benefits associated with various types of financial expertise and suggest that policy makers may wish to consider requiring industry experience on the audit committee to enhance financia

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