An Empirical Study of the Relationship Between Audit Committee Expertise and Financial Misreporting

Posted: Apr 17, 2014

• Derek Ross
• Mira Bennett
• Gage Simmons

Abstract

The composition and expertise of corporate audit committees have long been recognized as critical factors in financial reporting quality. However, the rapidly evolving business environment, characterized by increasing digitalization and cybersecurity threats, necessitates a re-examination of what constitutes relevant expertise for effective oversight. This study addresses a significant gap in the literature by investigating how specialized knowledge domains, particularly cybersecurity expertise, interact with traditional accounting qualifications to influence financial misreporting. Financial misreporting remains a persistent challenge despite regulatory reforms and enhanced governance requirements. The conventional focus on accounting and financial expertise within audit committees may be insufficient in an era where technological complexity permeates financial transactions and reporting systems. Recent high-profile cases of misreporting have involved valuation challenges for digital assets, revenue recognition for technology services, and accounting for cybersecurity incidents—all areas where traditional accounting expertise alone may prove inadequate. This research employs an innovative methodological approach that combines machine learning algorithms with established financial analysis techniques to examine the relationship between multidimensional audit committee expertise and financial misreporting. By developing a comprehensive expertise scoring system that incorporates cybersecurity knowledge alongside traditional qualifications, this study provides novel insights into how committee composition affects reporting outcomes. The findings have important implications for corporate governance practices, regulatory standards, and investor protection mechanisms.