SUMMARY: Recent debates on audit committee financial expertise have focused on “accounting” and “nonaccounting” financial experts. A significant proportion of firms do not appoint accounting financial experts (i.e., persons with specialized accounting/auditing experience) to their audit committees. We examine the determinants of firms' choice of the “audit committee financial experts” for a sample of Fortune 1000 firms. We test the relation between the demand for accounting financial experts (AFEs), potential litigation risk, and corporate governance. We find that firms with higher litigation risk are more likely to have AFEs on their audit committee. However, the association between litigation risk and the likelihood of appointing accounting financial experts occurs for firms with relatively strong governance but not for those with weak governance. Thus, our findings indicate that (1) companies with demand for accounting financial experts—measured by potential litigation risk—seem to be able to secure accounting financial experts, but (2) such benefits only accrue in the presence of otherwise strong corporate governance.
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Research Article| May 01 2009
Audit Committee Financial Expertise, Litigation Risk, and Corporate Governance
Jagan Krishnan, Professor;
Online ISSN: 1558-7991
Print ISSN: 0278-0380
American Accounting Association
AUDITING: A Journal of Practice & Theory (2009) 28 (1): 241–261.
Jagan Krishnan, Jong Eun Lee; Audit Committee Financial Expertise, Litigation Risk, and Corporate Governance. AUDITING: A Journal of Practice & Theory 1 May 2009; 28 (1): 241–261. https://doi.org/10.2308/aud.2009.28.1.241
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