The Accounting Financial Expertise of the Audit Committee Chair and Oversight Effectiveness

Prior research finds that the presence of accounting financial expertise (AFE) on the audit committee (AC) enhances financial reporting quality. The current study provides a broad examination of the effect of the AFE residing in the AC chair on the monitoring of financial reporting quality and the audit process. Based on a sample of over 13,840 observations from U.S. public companies, we find that AFE of the AC chair is associated with lower levels of earnings management and enhanced monitoring of the audit process. When augmented by AC members with AFE, AC chair AFE is also negatively associated with reduced misstatement risk. This finding suggests appointing an AFE to the AC may not in itself be sufficient to fully enhance oversight quality, unless the committee also has a chair who possesses AFE. Finally, chair AFE is also found to enhance the likelihood of reporting material control weaknesses and goodwill impairments.