Abstract:
The Sarbanes Oxley Act advocates the presence of financial experts on audit committees. However, the requirement proved controversial, culminating with the stock exchanges adopting a broad definition of financial expertise. We investigate the association between three types of audit committee financial expertise (accounting, finance and supervisory expertise) and accruals quality, in the presence of strong audit committee or board governance. Results indicate a positive relation between accounting expertise and accruals quality, which is more pronounced in the presence of strong audit committee governance. The findings suggest that future refinements to the financial expertise definition must focus on accounting expertise.
