Does Audit Committee Accounting Expertise Help to Safeguard Auditor Independence?

Abstract

In this study, we examine whether greater accounting expertise among audit committee members helps safeguard auditor independence by reducing the likelihood of auditor dismissal following an adverse internal control opinion or an income-decreasing restatement of previously filed financial statements. We find that auditors are less likely to be dismissed in the year following an adverse internal control opinion or an income-decreasing restatement of previously filed financial statements when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Importantly, we find similar results when limiting the sample to observations where the CEO likely wields greater influence over the audit committee. These findings have important implications for corporate nominating committees choosing board members that will serve on the audit committee, especially in light of recent research suggesting that greater CEO influence over the audit committee can reduce audit committee effectiveness.