Does the SOX Definition of an Accounting Expert Matter? the Association between Audit Committee Directors' Accounting Expertise and Accounting Conservatism

The Impact of Board Internationalization on Earnings Management

“…According to Dhaliwal, Naiker & Navissi (2010: 792), financial reporting issues involve high levels of technical details and, hence, a high degree of knowledge of accounting rules are required to recognize critical accounting issues at such high levels of earnings management. Indeed, in line with this conjecture, evidence demonstrates that boards including at least one individual with financial (accounting) expertise are associated with higher financial reporting quality (Dhaliwal et al, 2010;Krishnan & Visvanathan, 2008;Zhang, Zhou & Zhou, 2007 A second potential obstacle a foreign director faces is language (Kassis-Henderson, 2005, 2010Piekkari et al, 2015;Tenzer, Pudelko & Harzing, 2014). Although English seems to be the lingua franca of boards that include a foreign director (Piekkari et al, 2015), language potentially affects the 6 effectiveness of the board in two ways.…”

Do financial expert directors affect the incidence of accruals management to meet or beat analyst forecasts?

“…Prior research suggests that lack of appropriate expertise may reduce directors' ability to monitor the financial reporting process. For example, Krishnan et al (2008) . This implies that regulators have the concern that board members who lack sufficient financial expertise might deter an audit committee's ability to ensure high-quality reported earnings.…”

“…This statistic is similar to prior studies. For example, Krishnan et al (2008) show that about 20% of firms have at least one accounting financial expert for the period 2000 to 2002. Defond et al (2005) find that 17% of firms assign one accounting financial expert for the period of 1993 to 2002.…”

“…However, the results are mixed. For example, although Krishnan et al (2008) find that accounting conservatism is not correlated with nonaccounting financial expertise or nonfinancial expertise, Zhang et al (2007) find that both accounting and nonaccounting experts negatively affect the possibility of internal control weakness. Dhaliwal et al (2010) also find that the mix of accounting and nonaccounting financial expertise has the most positive impact on accruals quality.…”

“…The use of a financial expert remains a controversial issue. Some have argued that effective audit committee members are those who have general management experience (Olson, 1999), while others believe that accounting-specific expertise may be more important for audit committee members because audit committees are responsible for numerous duties that require a relatively high degree of accounting sophistication (DeFond, et al, 1997;Krishnan, et al, 2008). I find that the presence of both accounting and nonaccounting experts, who gain their expertise from supervising employees and overseeing the performance of companies, are able to contribute to the effectiveness of the board.…”