Melbourne Accounting Research Seminar - Ms Eunice Khoo

Ms Eunice Khoo from the University of New South Wales will present a MARS seminar.

Topic: The Impact of Audit Committee Members' Reputation Incentives on Monitoring the Financial Reporting Process

Abstract: We examine whether the reputation incentives of audit committee members improve their effectiveness in monitoring the financial reporting process. Prior research assumes that audit committee members allocate their time and effort proportionately across all memberships that they serve on. Contrary to prior research, we find that audit committee members with multiple audit committee memberships tend to focus their attention on the memberships that provide them with the greatest reputation value. Specifically, firms with a larger fraction of audit committee members where the membership is the most prominent are associated with a lower likelihood of financial restatement, a lower likelihood of earnings management, a lower likelihood of material weaknesses in internal control, and a higher likelihood of remediating material weaknesses in internal control. We conclude that director reputation is a strong incentive for audit committee members, such that it influences their monitoring effectiveness over the financial reporting process.