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Audit committee accounting expertise, CEO power, and audit pricing

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  • Hyungtae Kim
  • Byungjin Kwak
  • Youngdeok Lim
  • Jaeyoon Yu

Abstract

The Sarbanes–Oxley Act of 2002 (SOX) mandates that all listed firms disclose whether they have a financial expert on the audit committee, highlighting the committee’s expertise. However, some argue that non-accounting financial experts, compared to accounting financial experts, are not sufficient to ensure audit committee effectiveness because the former lack accounting knowledge. Accounting experts on audit committees may require higher audit efforts, while auditors may assess audit committees with accounting financial experts as effective, decreasing audit efforts. This paper first inspects the effect of audit committee accounting expertise on audit fees as a proxy for audit efforts, and then investigates whether the effect is moderated by powerful CEOs. Using post-SOX period data, our results show that, on average, firms with accounting experts on audit committees are more likely to pay higher audit fees, and the effect is less pronounced when a powerful CEO manages a firm.

Suggested Citation

  • Hyungtae Kim & Byungjin Kwak & Youngdeok Lim & Jaeyoon Yu, 2017. "Audit committee accounting expertise, CEO power, and audit pricing," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 421-439, October.
    • Handle: RePEc:taf:raaexx:v:24:y:2017:i:3-4:p:421-439
    DOI: 10.1080/16081625.2015.1105753
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    References listed on IDEAS

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    Cited by:

    1. Sohail Ahmad Javeed & Tze San Ong & Rashid Latief & Haslinah Muhamad & Wei Ni Soh, 2021. "Conceptualizing the Moderating Role of CEO Power and Ownership Concentration in the Relationship between Audit Committee and Firm Performance: Empirical Evidence from Pakistan," Sustainability, MDPI, vol. 13(11), pages 1-26, June.
    2. Yosra Mnif & Imen Slimi, 2023. "Former auditors on the audit committee and earnings management: Evidence from African banks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2383-2420, June.
    3. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    4. Cai, Yongbin & Li, Mengzhe, 2022. "CEO-CFO tenure consistency and audit fees," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    5. Abbasi, Kaleemullah & Alam, Ashraful & Bhuiyan, Md. Borhan Uddin, 2020. "Audit committees, female directors and the types of female and male financial experts: Further evidence," Journal of Business Research, Elsevier, vol. 114(C), pages 186-197.

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