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The impact of audit committee expertise on audit quality: Evidence from UK audit fees

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journal contribution
posted on 29.09.2017 by Chaudhry Ghafran, Noel O'Sullivan
Governance regulators currently place great emphasis on ensuring the presence of financial expertise on audit committees (Sarbanes-Oxley, 2002; UK Corporate Governance Code 2003–2016). Underlying this is a belief that greater expertise enhances the effectiveness of audit committees and, by extension, the quality of the external audit. This study investigates the impact of audit committee expertise on one measure of audit quality - audit fees paid by FTSE350 companies. Our analysis finds that audit committees possessing greater levels of financial expertise are associated with higher audit fees. When we segregate financial expertise between accounting and non-accounting, we find that the positive impact identified is driven by non-accounting expertise. Furthermore, when we separate FTSE100 and FTSE250 firms we find the impact of financial expertise is confined to FTSE250 firms. Our findings are important as they highlight the usefulness of segregating financial expertise between specialists and non-specialists, something which regulators in the UK and in the US currently do not do. Our findings also highlight the potential value of audit committee expertise in smaller as opposed to larger listed firms, suggesting that the value of expertise to audit quality depends on the specific financial reporting challenges firms face.

History

School

  • Business and Economics

Department

  • Business

Published in

The British Accounting Review

Citation

GHAFRAN, C. and O'SULLIVAN, N., 2017. The impact of audit committee expertise on audit quality: Evidence from UK audit fees. The British Accounting Review, 49 (6), pp. 578-593.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This paper was accepted for publication in the journal The British Accounting Review and the definitive published version is available at https://doi.org/10.1016/j.bar.2017.09.008.

Acceptance date

21/09/2017

Publication date

2017-09-22

Copyright date

2017

ISSN

0890-8389

Language

en

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