Audit Committee Characteristics and Financial Misstatement: A Study of the Efficacy of Certain Blue Ribbon Committee Recommendations

The functioning of corporate audit committees was criticized in recent years by the Treadway Commission, the Public Oversight Board, the Kirk Panel, and the SEC Chairman. In response, the NYSE and NASD sponsored the Blue Ribbon Committee (BRC) on Improving the Effectiveness of Corporate Audit Committees. The BRC Report includes recommendations aimed at strengthening director independence and qualifications, and highlights the role of internal auditors in assisting audit committees in the corporate governance process. Moreover, the first three recommendations of the BRC relate to audit committee composition: absence of inside or “gray” directors, and presence of a member with financial expertise. This study examines the association between audit committee composition and the committee's interaction with internal auditing. Our results, based on responses from chief internal auditors of 114 public companies, indicate that committees comprised solely of independent directors and with at least one member having an accounting or finance background are more likely to (1) have longer meetings with the chief internal auditor; (2) provide private access to the chief internal auditor; and (3) review internal audit proposals and results of internal auditing. These findings provide empirical support for the BRC's recommendations related to audit committee composition.

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Prologue II

10.1093/oso/9780190073312.003.0003 ◽

2021 ◽

pp. 17-20

Author(s):

George M. Marsden

Keyword(s):

New York ◽

New York City ◽

York City ◽

Religious Life ◽

Theological Seminary ◽

Blue Ribbon ◽

Union Theological Seminary ◽

Blue Ribbon Committee ◽

Mainline Protestantism

The Rev. Henry Sloane Coffin, ’97, who chaired the blue-ribbon committee that in 1952 answered William F. Buckley Jr. with the categorical conclusion that “religious life at Yale is deeper and richer than it has been in many years,” could recall more distant student days when Yale’s religious life was deeper and richer still. Coffin was a renowned preacher, was the president of Union Theological Seminary in New York City (he had once been a leading candidate for the Yale presidency), and had done as much as anyone to shepherd mainline Protestantism from evangelicalism to theological modernism....

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Audit Committee Characteristics and Restatements

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2004.23.1.69 ◽

2004 ◽

Vol 23 (1) ◽

pp. 69-87 ◽

Cited By ~ 685

Author(s):

Lawrence J. Abbott ◽

Susan Parker ◽

Gary F. Peters

Keyword(s):

Financial Reporting ◽

Audit Committee ◽

Negative Association ◽

Activity Level ◽

Audit Committees ◽

Control Group ◽

Blue Ribbon ◽

Financial Restatement ◽

Financial Expertise ◽

The Impact

This study addresses the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial restatement. We examine 88 restatements of annual results (without allegations of fraud) in the period 1991–1999, together with a matched pairs control group of firms of similar size, exchange listing, industry and auditor type. We find that the independence and activity level (our proxy for audit committee diligence) of the audit committee exhibit a significant and negative association with the occurrence of restatement. We also document a significant negative association between an audit committee that includes at least one member with financial expertise and restatement. To test the robustness of the results we also consider a sample of 44 fraud and no-fraud firms and arrive at largely similar findings. Our results underscore the importance of the BRC's recommendations as a means of strengthening the monitoring and oversight role that the audit committee plays in the financial reporting process.

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