Audit Committee Expertise and Early Accounting Error Detection: Evidence from Financial Restatements

摘要

We study the effect of audit committee expertise on the time it takes firms to detect material financial statement misstatements. The time a firm takes to detect misstatements is measured by the length of the financial statement restatement period, and the four types of expertise studied are accounting expertise, non-accounting financial expertise, supervisory expertise, and industry expertise. The results show that the presence of any of the aforementioned types of expertise on the audit committee reduces the length of the restatement period. Also, audit committee expertise reduces the length of the restatement period for misstatements that involve earnings overstatements or non-overstatements, involve errors or irregularities, and occur before or after the passage of the Sarbanes-Oxley Act (SOX). Additionally, industry expertise reduces the length of the restatement period for earnings overstatements (but not non-overstatements) and interacts with the other three types of expertise in reducing the length of the restatement period. Moreover, accounting expertise on the audit committee reduces the length of the restatement period after the passage of the Sarbanes Oxley Act (SOX).