Do Financial Statement Users Care About Differences In Board Members' Source of Financial Expertise? Views of Financial Analysts

• Published in: The journal of applied business and economics 2009-05, Vol.9 (2), p.21
• Main Authors: Dickins, Denise, Hillison, William, Platau, Steven
• Format: Article
• Language: English
• Subjects: Accounting; Audit committees; Auditor changes; Audits; Boards of directors; Corporate governance; Directors; Financial reporting; Financial statements; Studies
• ISSN: 1499-691X

In this study we report financial analysts' confidence in financial reporting contingent upon varying sources of financial expertise of the audit committee's designated financial expert. We find that these sophisticated users have more financial statement confidence when the designated financial expert's source of expertise is accounting-based rather than supervisory-based, as defined by the securities exchanges. We also find that rather than the mandated categorizations of source of expertise, analysts tend to view the designated financial expert's expertise along the lines of internally- or externally-derived; and report more financial statement confidence when the designated financial expert's source of expertise is externally-derived. Further, we find that among a choice of individuals with accounting-based and external-based sources of expertise, financial statement confidence is generally highest when the designated financial expert is a current accounting professor. The level of confidence provided by different expertise levels appear to be independent of the size of the company and the complexity of the accounting issues considered. Our findings appear to support those of prior research in that expertise on the board of directors and audit committee is an important component of the confidence placed in a firm's financial statements. [PUBLICATION ABSTRACT]