Audit Committee Meetings and the Timeliness of Misstatement Disclosure

Abstract

The Chairman of the SEC has recently called on audit committees to be active, knowledgeable, and independent to ensure high-quality corporate disclosure to the capital markets (SEC 2019). In this paper, we investigate whether more active audit committees improve financial reporting outcomes by examining the association between the frequency of audit committee meetings in a misstatement year and the timeliness of the restatement disclosure. We find that more audit committee meetings are associated with timelier misstatement disclosures, and in particular, when misstatements are less severe. We attribute this association to more communication among the audit committee, external auditors, and management, which leads to a faster resolution of financial reporting issues. Additionally, we find that the effect of audit committee meetings on the timeliness of misstatement disclosure is weaker for busier audit committees and for audit committees with accounting expertise. Finally, we find that more active audit committees are more likely to appoint a Big 4 auditor after the dismissal of the previous external auditor. Overall, our finding that more active audit committees improve financial information quality lends support to the SEC’s call for audit committees to be more active.