Audit Committee Characteristics
THE ASSOCIATION BETWEEN AUDIT COMMITTEE CHARACTERISTICS AND FINANCIAL RESTATEMENTS
ABSTRACT:
The second section focuses on the background of corporate governance provisions such as the Blue Ribbon Committee (BRC) and Sarbanes Oxley (SOX) that aim to improve the effectiveness of audit committees. The composition of audit committees is heavily critiqued with an emphasis on independence, financial expertise and frequency of meetings. This paper will examine each of these characteristics in depth in section 3 and their effect on financial restatements. Furthermore, this literature review will show that if audit committees can exhibit these behaviors and attributes the risk of restatements and fraudulent financial reporting will be reduced. Finally in the last section, further research on other audit committee characteristics is suggested to improve the quality of financial reporting and reduce the number of accounting scandals involving financial restatements.
INTRODUCTION
Investigating the impact of audit committee characteristics on restatements is important to policymakers, regulators, academia and investors alike because restatements, some investigated by the SEC as fraud, have shown to occur more frequently over the last decade as a consequence of the highly publicized accounting scandals. Due to the ubiquitous occurrence of management fraud and the inaction or inadequacy of corporate governance, current enterprises are faced with material amounts of financial statement line item risk and financial statement fraud. To curtail or mitigate this risk of restatement and fraudulent financial reporting, organizations should ensure that they have a formal and active corporate governance body, namely the audit committee which must independently maintain member objectivity, communicate on a frequent basis with both management and external auditors; and possess financial expertise to effectively control risk.
The audit committee characteristics
ABSTRACT:
The second section focuses on the background of corporate governance provisions such as the Blue Ribbon Committee (BRC) and Sarbanes Oxley (SOX) that aim to improve the effectiveness of audit committees. The composition of audit committees is heavily critiqued with an emphasis on independence, financial expertise and frequency of meetings. This paper will examine each of these characteristics in depth in section 3 and their effect on financial restatements. Furthermore, this literature review will show that if audit committees can exhibit these behaviors and attributes the risk of restatements and fraudulent financial reporting will be reduced. Finally in the last section, further research on other audit committee characteristics is suggested to improve the quality of financial reporting and reduce the number of accounting scandals involving financial restatements.
INTRODUCTION
Investigating the impact of audit committee characteristics on restatements is important to policymakers, regulators, academia and investors alike because restatements, some investigated by the SEC as fraud, have shown to occur more frequently over the last decade as a consequence of the highly publicized accounting scandals. Due to the ubiquitous occurrence of management fraud and the inaction or inadequacy of corporate governance, current enterprises are faced with material amounts of financial statement line item risk and financial statement fraud. To curtail or mitigate this risk of restatement and fraudulent financial reporting, organizations should ensure that they have a formal and active corporate governance body, namely the audit committee which must independently maintain member objectivity, communicate on a frequent basis with both management and external auditors; and possess financial expertise to effectively control risk.
The audit committee characteristics