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    The Association between Audit Committee...
    research summary posted September 10, 2013 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition 
    The Association between Audit Committee Multiple-Directorships, Tenure, and Financial Misstatements
    Practical Implications:

    Auditors should be interested in these findings both for designing an effective engagement and for properly considering risk and liability during the client acceptance stage of the audit. Firms wherein the board contains multiple directors with long tenure are riskier, and auditors should consider that fact when deciding whether to accept the client and when designing the audit.


    Sharma, V.D. and E.R. Iselin.  2012. The Association between Audit Committee Multiple-Directorships, Tenure, and Financial Misstatements. Auditing: A Journal of Practice and Theory. (31) 3: 149–175.

    audit committee, multiple-directorships, tenure, restatement, misstatement, financial reporting quality
    Purpose of the Study:

    This study seeks to answer questions about whether multiple-directorships and length of tenure on an audit committee have any impact on financial reporting quality as measured by financial restatements.

    Design/Method/ Approach:

    The study uses restatement announcements from the General Accounting Office as well as data on audit committee composition for 1999 to 2001 and 2004 to 2006. It then runs econometric tests on the data to ascertain what relationships exist between restatements and audit committee composition.


    The authors find that (1) multiple-directorships lead to decreased financial reporting quality indicated by an increased number of restatements because directors are "spread too thin" and (2) length of tenure is also positively associated with financial restatements.

    Board/Audit Committee Composition