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Audit committee experts and earnings quality

Nelson, Sherliza Puat and Devi, Susela (2013) Audit committee experts and earnings quality. Corporate Governance, 13 (4). pp. 335-351. ISSN 1472-0701

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Abstract

Purpose – The purpose of this paper is to investigate the relationship between audit committee expertise and financial reporting quality. Since the Sarbanes Oxley Act, 2002, there has been growing interest in the research concerning audit committee expertise, especially as the Security Exchange Commission requires firms to identify their audit committee financial experts. Design/methodology/approach – Based on two theories, the resource dependence theory and agency theory, the study examines the association of audit committee experts with financial reporting quality, proxied by earnings management. Samples involved 2008 financial data of 300 firms that were ranked by highest market capitalisation. In total, four types of expertise are developed based on academic qualification, professional qualification and work experience. Findings – Presence of non-accounting experts and accounting experts is significant to reduce the magnitude of earnings management. Other than that, leverage and firms size are also found to be significant. Originality/value – The findings show RDT is prevalent in accounting or auditing domain, where there is evidence showing directors bridge firms with external resources such as expertise and experience. Subsequently, contribute to the mainstream accounting literature that the resource dependence theory is also vital in explaining situations where directors’ expertise and knowledge are involved.

Item Type: Article (Journal)
Additional Information: 3486/31976
Uncontrolled Keywords: Public companies, Financial reporting, Audit committees, Experts, Resource dependence, Qualification, Earnings management, Governance, Lifelong learning
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Kulliyyahs/Centres/Divisions/Institutes: Kulliyyah of Economics and Management Sciences
Depositing User: Sherliza Puat Nelson
Date Deposited: 11 Sep 2013 20:05
Last Modified: 11 Sep 2013 20:05
URI: http://irep.iium.edu.my/id/eprint/31976

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