ADIAC-00239; No of Pages 15

Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx

Contents lists available at ScienceDirect

Advances in Accounting, incorporating Advances in

International Accounting

The association between characteristics of audit committee accounting

experts, audit committee chairs, and financial reporting timeliness
John L. Abernathy a,⁎, Brooke Beyer b, Adi Masli c, Chad Stefaniak d
a
Kennesaw State University, United States
b
Virginia Tech, United States
c
University of Kansas, United States
d
Central Michigan University, United States

a r t i c l e i n f o a b s t r a c t

Available online xxxx We investigate the association between audit committee (AC) members' financial expertise and financial
reporting timeliness, and extend the discussion by investigating how the source of accounting expertise
Keywords: (e.g., public accounting or CFO) differentially influences financial reporting timeliness. We predict and find
Audit committee that AC accounting financial expertise is associated with timelier accounting information. Further, we find that
Audit committee chair accounting expertise gained from public accounting experience is associated with timelier financial reporting;
Accounting expertise
however, accounting expertise gained from CFO experience is not. We also find that AC chairs (ACCs) with
Audit report lag
Earnings announcement lag
accounting expertise from public accounting experience are significantly associated with timelier financial
SEC filing reporting while ACCs with CFO-sourced accounting expertise are not. Our results are important for two reasons.
Financial reporting timeliness First, our results suggest that AC accounting financial expertise contributes to AC effectiveness by improving the
timeliness of financial information. Second, our findings highlight how personal characteristics of accounting
financial experts influence contributions toward AC effectiveness.
© 2014 Published by Elsevier Ltd.

1. Introduction
One important characteristic of audit committee (AC) effectiveness
that has been addressed by academic research and regulatory bodies
is AC financial expertise (e.g., Abbott, Parker, & Peters, 2004; BRC,
1999; Krishnan & Visvanathan, 2008). The purposes of this study are
to (1) extend prior studies on AC financial expertise by investigating
the association between AC accounting financial expertise and financial
reporting timeliness, and (2) determine how the source of accounting
expertise (i.e., public accounting experience, CFO experience) differen-
tially influences timeliness.
Our investigation is particularly relevant because recent regulatory
actions suggest that improving timeliness of financial reporting is a
priority for regulators (e.g., Doyle & Magilke, 2013; Schmidt & Wilkins,
2013). For example, in 2003, the SEC mandated a tiered reduction in
filing requirements, resulting in a 60-day filing deadline for large
accelerated filers beginning in 2006 (SEC, 2005).1 Behn, Searcy, and
Woodroof (2006) contend that these requirements signal the SEC's
position that improving financial reporting timeliness increases value
to users. This is consistent with the FASB (2010) Conceptual Framework,
which states that timeliness is an important aspect of financial informa-
tion. Further, prior research suggests that financial reporting timeliness
affects decision-makers' expected payoffs (Feltham, 1972) and security
prices (Kross & Schroeder, 1984).
Prior research has investigated a number of factors associated with
financial reporting timeliness (e.g., Ettredge, Li, & Sun, 2006; Sengupta,
2004), but has not yet investigated the association between AC financial
expertise and financial reporting timeliness.2 The relation between AC
financial expertise and financial reporting timeliness is particularly
important because the AC is charged with overseeing the audit engage-
ment (Sarbanes-Oxley Act of 2002, 2002), which is a primary compo-
nent of financial reporting timeliness (Jaggi & Tsui, 1999).3 Recently,
the Public Company Accounting Oversight Board (PCAOB) approved
Auditing Standard 16 (AS 16) in order to improve communications

⁎ Corresponding author at: Kennesaw State University, 1000 Chastain Road, Mail Drop
0402, Kennesaw, GA 30144-5591, United States. Tel.: +1 770 794 7609; fax: + 1 770
499 3420.
E-mail addresses: jabern21@kennesaw.edu (J.L. Abernathy), bbeyer@vt.edu (B. Beyer),
amasli@ku.edu (A. Masli), stefa1cm@cmich.edu (C. Stefaniak).
1
A large accelerated filer has a worldwide market value of outstanding voting and non-
voting common equity by non-affiliates of $700M or more. All S&P 500 firms meet the
criteria of an accelerated filer.
2
While Ika and Ghazali (2012) investigate the association between AC effectiveness
and financial reporting timeliness in an Indonesian setting, they do not consider AC finan-
cial expertise.
3
Many audit committee charters explicitly state that timeliness is a responsibility of the
audit committee. For example, PACCAR, Inc.'s charter states, “The Committee shall discuss
with the head of the internal audit staff and the independent auditors … factors that may
impact the effectiveness and timeliness of such audits.”

http://dx.doi.org/10.1016/j.adiac.2014.09.001
0882-6110/© 2014 Published by Elsevier Ltd.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
2 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
between the external auditors and the AC, highlighting the importance
of the AC in the audit process.4 Furthermore, NASDAQ and NYSE listing
standards mandate that the AC exercise an oversight role in SEC filings,
including the earnings release process (Bochner & Blake, 2008). Accord-
ingly, we investigate the association between AC members' financial
expertise and financial reporting timeliness, measured by earnings
announcement lag (EAL), audit report lag (ARL), and SEC late filings
(SECLATE).5
Research suggests that the presence of financial experts on ACs is
positively associated with AC effectiveness in monitoring financial
reporting quality (e.g., Abbott et al., 2004; Cohen, Krishnamoorthy, &
Wright, 2004; DeZoort, 1998; Kalbers & Fogarty, 1993). However,
Dhaliwal, Naiker, and Navissi (2010) note an ongoing debate in the
literature concerning the definition of what constitutes financial
expertise. Prior research has adopted either a (1) narrow definition of
financial expertise, which differentiates AFEs (i.e., experts that have
education or experience in accounting or auditing) and non-AFEs
(i.e., financial experts that only have work experience in finance posi-
tions, as a chief executive officer or company president), or (2) broad
definition of financial expertise, which does not differentiate between
AFEs and non-AFEs.
We use the narrow definition of financial expertise to investigate our
first hypothesis – the association between AC financial expertise and
financial reporting timeliness – because prior research finds that the
type of financial expertise may differentially affect financial reporting
quality (e.g., Badolato, Donelson, & Ege, 2013; Dhaliwal et al., 2010;
Hoitash, Hoitash, & Bedard, 2009; Krishnan & Visvanathan, 2008).
Specifically, we use hand-collected biographical data to determine AC
member experience, and we classify each member as an AFE, non-AFE,
or non-financial expert.6
DeFond, Hann, and Hu (2005) suggest that accounting financial
expertise may be more important for tasks that require a high degree
of accounting sophistication. Similarly, Beasley, Carcello, Hermanson,
and Neal (2009) and Hoitash et al. (2009) both suggest that AC
AFEs are more involved with judgments, estimates, and assumptions
inherent in GAAP and the audit process. Following DeZoort (1998),
who contends that specific accounting experience improves AC mem-
bers' capacity to understand technical issues facing their companies,
we predict that increased technical competency will reduce the amount
of time needed for the AC sufficiently to discuss, comprehend, and eval-
uate significant accounting issues with the auditor and management
(c.f., Audit Standard No. 16). That is, we predict that AFEs on ACs will
facilitate timelier financial reporting through superior technical
competency, which improves communication efficiency between
management and the AC, as well as the auditor and the AC, regarding
significant judgments, estimates, assumptions, unusual transactions,
and dispute resolutions.7 Therefore, we expect that an increased
proportion of AFEs on the AC will be associated with increased financial
reporting timeliness.
The second purpose of our study is in response to Bedard and
Gendron's (2010) call for researchers to take a deeper view of the
agency role of AC AFEs to assess how personal characteristics influence
contributions toward AC effectiveness. Specifically, and unlike most
prior research that has homogeneously classified AC members as AFEs
4 8
AS 16 supersedes AU sec. 310; sec 380; sec 9380; and Auditing Interpretations of
Section 380.
5
We measure EAL (ARL) as the number of days between a firm's fiscal year end and the
earnings announcement (audit report signature) date.
6 9
Our categorization of AC financial expertise is based on biographical information and
is not limited to the members designated as financial experts in a company's 10-K.
7
Salterio (2012) suggests audit timeliness is related to the outcome of auditor–client
negotiations, and Ng and Tan (2003) suggest that effective ACs facilitate more timely ne-
gotiation resolution. While this is certainly a mechanism through which AC financial ex-
pertise could enhance financial reporting timeliness, it is important to note that dispute
resolution is just one of many communications that ACs must engage in throughout the
reporting process.
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
if they meet the narrow definition of a financial expert, we also investi-
gate the effects of AC members' accounting expertise source on financial
reporting timeliness.8 Using biographical data, we classify AFEs as
having accounting financial expertise derived through experience in
public accounting or obtaining accounting certification (PAAFEs), or
through experience as a CFO, controller, or other accounting supervisory
position (CFOAFEs).
The extant literature provides evidence that the role of the CFO is
shifting away from technical accounting and toward strategic planning
(Aier, Comprix, Gunlock, & Lee, 2005), and managing associations
with venture capitalists and the investing public (Jones, 2000). Edur
(1999) finds that CFOs perceive that accounting functions are a relatively
minor part of their duties. While DeFond et al. (2005) suggest that
AC members are responsible for tasks that require high degrees of
accounting sophistication, the changing nature of CFO responsibilities
inherently increases the variance in CFO backgrounds and accounting
competency (Aier et al., 2005). This variance in accounting competency
increases the likelihood that CFOAFEs will not have the requisite techni-
cal competency efficiently to navigate a discussion with the auditor or
management concerning significant accounting policies and unusual
transactions (as is expected of a financial expert). Conversely, PAAFEs,
are more likely to possess the requisite accounting knowledge
because their experiences are more homogeneously centered on
accounting- and audit-related issues. We suggest that PAAFEs will
have a greater comprehension of GAAP issues and the audit process
(i.e., GAAS), which will lead to timelier financial reporting through
increased communication efficiency between management and the
AC, as well as the auditor and the AC, regarding significant judgments,
estimates, assumptions, unusual transactions, and dispute resolutions.
Accordingly, we predict that AC public accounting expertise will be
associated with more timely accounting information than AC CFO
expertise.
The third purpose of our study is to investigate how the financial
expertise of the AC chair (ACC) is associated with financial reporting
timeliness. The ACC is responsible for such functions as setting the
meeting agenda, controlling the meeting and discussions, building
the appropriate relationships with auditors and management, and
developing chemistry among AC members (Bedard & Gendron, 2010).
However, Carcello, Hermanson, and Ye (2011) note that very little
research separately examines the role of the ACC in facilitating AC
effectiveness. The ACC, as the nexus for the AC's interactions with
management and the internal and external auditors, is critical to finan-
cial reporting timeliness (PricewaterhouseCoopers, 2003). Leveraging
the theory of our previous predictions, we contend that ACC accounting
financial expertise will facilitate timelier financial reporting. Finally,
we expect that ACCs with PA-sourced accounting expertise will be
associated with timelier financial reporting than ACCs with CFO-
sourced accounting expertise.
We use a sample of 996 S&P 500 firm-year observations from 2006
to 2008.9 The results generally support our hypotheses and suggest
that the proportion of AFEs on an AC is positively associated with the
financial reporting timeliness.10 Further, our results from tests of AC
accounting expertise source suggest that the most positive impact on
financial reporting timeliness is achieved when firms have a higher
Consistent with the SEC's original definition of a financial expert, most prior research
(e.g., Dhaliwal et al., 2010; Hoitash et al., 2009; Krishnan & Visvanathan, 2008) has
grouped all AC members with experience as a controller, auditor, CPA, CFO, financial con-
troller, or chief accounting officer as an AFE.
Following prior research (e.g., Klein, 2002; Krishnan & Visvanathan, 2008), we use a
sample of S&P 500 firms to conduct our analysis. In addition, our sample period starts in
2006, because this is the first year that firms with more than $700 million in public float
were required to reduce their filing period to 60 days (SEC 2005). All companies listed
on the S&P 500 in 2006 had public floats in excess of $700 million. Thus, accelerated filing
deadlines affected all firms in our sample.
10
Results are robust to inclusion of firm and governance characteristics (e.g., Hoitash
et al., 2009).
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
proportion of PA-sourced AFEs and not for higher proportion of
CFO-sourced AFEs. While our results suggest that the effect of AFEs on
timeliness is significant, it is important to examine more specific AC
characteristics in order to identify effective AC AFEs. For example, our
results from tests of ACC accounting financial expertise provide mixed
evidence that ACC accounting financial expertise is significantly associ-
ated with financial reporting timeliness; however, when we classify
the ACC AFEs into PAACCs and CFOACCs, we find that PAACCs are
significantly associated with financial reporting timeliness, but
CFOACCs are not.
Our study makes several contributions to the literature. First, prior
research indirectly suggests the possibility that AFEs on the AC could
improve financial reporting timeliness via AFEs being associated with
decreased material weaknesses in internal controls (Hoitash et al.,
2009) and decreased audit fees (Krishnan & Visvanathan, 2009). How-
ever, our findings extend these studies by directly testing, and finding,
that AFEs are associated with timelier financial reporting after control-
ling for these factors.
Second, we contribute to the ongoing debate (c.f., Dhaliwal et al.,
2010) on the appropriate definition of an AC financial expert. Specifically,
our primary results favor the academy's supposition that individuals
with greater accounting technical competency contribute significantly
to AC effectiveness (DeZoort, 1997, 1998; McDaniel, Martin, & Maines,
2002), as well as the SEC's original definition and its intention of
mandating that an AFE be disclosed.
Third, our study is the first to examine empirically the influence of
more specific AC member personal characteristics (c.f., Bedard &
Gendron, 2010) – in particular, accounting expertise source – when
considering how accounting financial expertise contributes to AC
effectiveness in the post-SOX era. We address the call from Cohen,
Krishnamoorthy, and Wright (2008) who call for research on the
forms of knowledge that are most important for the types of issues
confronting the AC. Our findings suggest that PA-sourced accounting
expertise is most important for the issue of timely financial reporting.
Similar to Bedard and Gendron (2010), we believe this line of research
to be important because the homogenous combination of AFEs might
result in the masking of otherwise discernible effects, similar to what
has been found in the literature when using a broad definition of
financial expertise.
Finally, our study is one of the first studies to examine the effect of
the ACC financial expertise on financial reporting timeliness. Despite
the fact that the ACC is responsible for driving the agenda, conducting
the meeting, and coordinating interactions between meetings, very
little research has examined separately the role of the ACC in facilitating
effective AC performance (Bedard & Gendron, 2010); Carcello et al.
(2011) describe this as “an unfortunate oversight” and an area that is
“worthy of future study” (p. 26).
The remainder of this paper is organized as follows. Section 2
reviews the related research and develops the hypotheses. Section 3
describes the sample selection process and details our research method-
ology. Sections 4 and 5 provide our results and conclusion.
2. Background and hypothesis development
2.1. Defining accounting financial expertise
AC financial expertise has long been a topic of interest for regulators
and academics (BRC, 1999; Cohen et al., 2004; DeZoort, 1997; DeZoort,
Hermanson, Archambeault, & Reed, 2002; Kalbers & Fogarty, 1993; SOX,
2002; Treadway Commission, 1987). Advocates propose that the pres-
ence of financial experts on ACs will increase the effectiveness of ACs
in monitoring financial reporting quality. SOX, Section 407, required
the SEC to adopt rules mandating that the AC of public firms must
comprise of at least one member who is a financial expert or to disclose
reasons for not adopting this requirement. The SEC initially proposed a
stringent definition of financial expert, namely, an individual who has
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
3
education and experience in accounting or auditing (e.g., auditor,
CFO, controller or accounting officer). In response to criticism that this
definition was overly restrictive, the SEC (2002b) adopted the current
definition of an AC financial expert, which is broad in nature and states
that an AC member can be designated a financial expert if the member
has accounting expertise (e.g., auditor, CFO, controller or accounting of-
ficer), or certain types of non-accounting (finance and supervisory) ex-
pertise (e.g., investment banker, financial analyst, CEO or company
president). Hence, the designated financial expert could be an accounting
financial expert (AFE) or a non-accounting financial expert (non-AFE).
2.2. Prior research on audit committee financial expertise
Prior research has investigated predominately the effects of financial
expertise using either a broad definition of financial expertise (consis-
tent with the definition eventually adopted by the SEC) or a narrow def-
inition (which differentiates between AFEs and non-AFEs, consistent
with the SEC's original definition of a financial expert).11 Prior research
using a broad definition finds mixed results when investigating the
effects of AC financial expertise. For example, under the broad
definition, Abbott et al. (2004) and Agrawal and Chadha (2005) find
that AC financial expertise is negatively related to the occurrence of
restatement. Farber (2005) finds a significantly lower occurrence of
financial fraud in firms with financial expertise on the AC. However,
Anderson, Mansi, and Reeb (2004) find no association between AC
financial expertise and cost of debt, and Van der Zahn and Tower
(2004) find no association between the magnitude of earnings manage-
ment and the AC's financial expertise.
Conversely, studies that have adopted a narrow definition of financial
expertise have provided more consistent results. For instance, Krishnan
and Visvanathan (2008) find AC accounting financial expertise is associ-
ated with more conservative financial reporting, but nonaccounting
financial expertise is not. Dhaliwal et al. (2010) find a significant posi-
tive relation between AC accounting financial expertise and accruals
quality. Additionally, research suggests that the market discriminates
between AFE and non-AFEs on the AC. Specfically, DeFond et al.
(2005) find that the market rewards companies for the appointment
of AFEs to the AC, but not for the appointment of AC directors with
nonaccounting financial expertise. In sum, prior studies provide
evidence of differing effects on financial reporting quality based on the
type of AC financial expertise.
2.3. Accounting financial expertise and timeliness
According to the FASB's (2010) Conceptual Framework, timely
information is that which is available to decision-makers before it
loses its capacity to influence decisions. Accounting researchers have
long supported the FASB's definition of timely information and its
importance. For example, Feltham's (1972) analytical model shows
that decision-maker's choices and expected payoff are affected signifi-
cantly by information timeliness. Both Givoly and Palmon (1982) as
well as Kross and Schroeder (1984) find that delayed earnings
announcements are associated with lower abnormal returns than
those of timely announcements. Further, Ashton, Willingham, and
Elliott (1987) suggest that information timeliness can affect the level
of uncertainty associated with decisions based on the reported informa-
tion. More recently, Schwartz and Soo (1996) find that earnings release
delays can diminish the value of public disclosures relevant to the
pricing of securities and can create inequity among market participants
who do not share similar access to private information.
While prior research has extensively investigated auditor and client
characteristics as determinants of reporting timeliness, it has not
yet investigated the association between AC financial expertise and
11
See Cohen et al. (2004), DeZoort et al. (2002), Bedard and Gendron (2010), Turley and
Zaman (2004) for more thorough reviews of the academic literature on ACs.
4 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
accounting information timeliness. This is surprising given the explicit
role that the AC plays in the financial reporting process. Prior research
has examined accounting information timeliness using several metrics,
but we contend that AC financial expertise can have a direct impact on
three aspects of reporting timeliness — earnings announcement lag
(EAL), audit report lag (ARL), and SEC late filings (SECLATE). Each of
these proxies for timeliness captures a distinct quality of reporting time-
liness, and each is influenced distinctly by the extent that an AC can
intelligently and efficiently communicate with either management
and/or the auditor regarding significant judgments, estimates, assump-
tions, unusual transactions, and dispute resolutions.
First, EAL is an important measure because the company's decision to
release earnings reflects an internal confidence in a company's financial
reporting system by both management and the AC.12 Additionally, prior
research documents that the stock market reacts quickly to preliminary
earnings releases (c.f., Kothari, 2001) and that more information arrives
at the market during periods when earnings reports are released than at
other times (Beaver, 1968). Second, ARL is an important measure
because it provides an objective measure of the rapidity with which
an organization can publish its audited financial statements and
captures, among other factors, the AC's ability to facilitate the audit
and financial reporting process.13 Third, we examine SECLATE because
firms that delay filing with the SEC can experience negative market-
adjusted stock returns and other consequences (e.g., Alford, Jones, &
Zmijewski, 1994), and because it serves as an objective measure of
failing to report accounting information timely.
Prior research supports an expectation that AC accounting financial
expertise creates financial reporting efficiency and should lead to time-
lier financial reporting (i.e., reduced EAL, ARL, and SECLATE). Specifically,
we contend that AFEs on the AC facilitate timelier financial reporting
through superior technical competency, which improves dispute
resolution and AC communication efficiency. That is, DeZoort (1998)
contends that specific accounting experience improves AC members'
capacity to understand technical issues facing their companies.
Increased technical competency reduces the amount of time needed
for the AC sufficiently to discuss, comprehend, and evaluate significant
accounting policies and unusual transactions with management and
the auditor (c.f., Audit Standard No. 16). Moreover, AFEs likely facilitate
timelier dispute resolution because they have been shown to be more
involved with judgments, estimates, and assumptions throughout
the financial reporting process (Beasley et al., 2009). We contend that
the heightened involvement facilitates communications and issue
familiarity, thereby, reducing issue comprehension time as well as
dispute resolution time.
These efficiencies manifest in each of our proxies for financial
reporting timeliness. For example, EAL will likely decrease due to
increased AC financial expertise because NASDAQ and NYSE listing
standards mandate that the AC exercise an oversight role in SEC filings,
including the earnings release process (Bochner & Blake, 2008).14 As the
AC's technical competency increases, it likely reduces the amount
of time needed for the AC sufficiently to discuss, comprehend, and
evaluate significant accounting policies and unusual transactions with
management, and thereby reduces the amount of time needed for the
AC to affirm management's earnings announcements.
12
Consistent with Krishnan and Yang (2009), we define EAL as the number of days be-
tween a firm's fiscal year-end and the earnings announcement date.
13
Consistent with Schwartz and Soo (1996), we define ARL as the number of days be-
tween a firm's fiscal year-end and the audit report date.
14
While the SEC has stated that it is their understanding that a company's audit is com-
plete or substantially complete by the time the company issues its earnings announce-
ment (SEC, 2002a), recent evidence shows that not all firms wait until the audit is
completed before releasing earnings (Krishnan & Yang, 2009). Lee, Mande, and Son
(2008) contend that these are usually situations where the audit has been substantially
completed, and where management and the AC have discussed the audit and financial re-
sults with the external auditor. Accordingly, while a more efficient audit process likely in-
fluences EAL, we contend that reduced EAL is also likely a product of increased
communication efficiency between management and the AC.
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
Similarly, Deloitte (2010) suggests that communication between the
auditor and the AC is fundamental to the audit process, and that leading
practices necessitate frequent communications between the AC and the
auditor outside of regularly scheduled meetings (often with private
sessions that exclude management). Further, the SEC requires the
auditor to communicate with the AC all critical accounting policies
and practices used by the client, alternative treatments of material
items within GAAP and ramifications of each treatments, as well as
the treatment preferred by the auditor (Deloitte, 2010). Toward that
end, the PCAOB approved Auditing Standard No. 16, Communications
with Audit Committees, in order to improve audits by enhancing commu-
nications between auditors and ACs regarding significant accounting
policies and practices, significant unusual transactions and the auditor's
evaluation of the quality of the company's financial reporting (PCAOB,
2012). We contend that as the AC's financial expertise increases, it
reduces the amount of time needed for the AC sufficiently to discuss,
comprehend, and evaluate significant accounting policies and unusual
transactions with the auditor, thereby reducing ARL.
Finally, as audit efficiency increases, the likelihood of filing late with
the SEC inherently decreases. Therefore, a natural byproduct of
increased AC financial expertise and decreased ARL is reduced SECLATE
likelihood. Taken together, we contend that AC accounting financial
expertise will increase overall financial reporting efficiency, and thus
be associated with more timely accounting information. Formally stated
as:
H1. The audit committee's accounting financial expertise is positively
associated with timeliness of financial reporting.
2.4. Type of accounting financial expertise and timeliness
The SEC initially proposed a narrow definition of financial expertise,
namely, an individual who has education and experience in accounting
or auditing (e.g., auditor, CFO, financial controller or accounting officer).
Recent research has adopted this narrow definition to investigate the
association between audit committee financial expertise and financial
reporting quality (e.g., Carcello, Hollingsworth, & Neal, 2006; Dhaliwal
et al., 2010; Hoitash et al., 2009; Krishnan & Visvanathan, 2008). How-
ever, Aier et al. (2005) note that there is significant variation in CFO
backgrounds, in that they observed that only 20% of Fortune 500 CFOs
were CPAs, 35% were MBAs, and 5% had procured both qualifications.
While contrary to the predominant expectation that all CFOs are
accounting-savvy, Aier et al.'s (2005) findings are consistent with
evidence suggesting that companies are beginning to adopt a new,
revised role for CFOs that decreases the emphasis on the CFO's knowl-
edge of basic accounting. For example, Edur (1999) notes that CFOs
see accounting functions as a relatively minor part of their duties.
Doug Carmichael, former chief auditor for the PCAOB, suggests that
today's CFO is, “prized more for [his/her] ability to raise money than
as an accounting officer” (Jones, 2000, NW2). Aier et al. (2005) suggest
that CFOs have become key players in strategic planning, information
technology initiatives, and managing associations with venture capital-
ists and the investing public. They also suggest that CFOs often focus on
complex business deals that improve financial performance rather than
external reporting, and conclude that CFOs' accounting skills may suffer
as they move away from their historical roles of enforcers of companies'
financial reporting requirements. Kwoh (2012), who suggests that firms
are shifting the responsibilities of the chief operating officer to the CFO,
affirms these findings.
Empirical evidence suggests that CFOs' varying levels of accounting
expertise are having adverse effects on organizations' financial
reporting processes. For example, Li, Sun, and Ettredge (2010) find
that firms with adverse SOX 404 opinions are less likely to have a CFO
with accounting knowledge (i.e., CPA licensure or public accounting
experience), and conclude that CFO accounting expertise source is an
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
important determinant of internal control quality. Because the shift in
CFO responsibility and requisite accounting knowledge is influencing
organizations' financial reporting processes, we contend that this shift
could also influence the financial reporting processes of organizations
whose ACs rely on CFOs as their accounting financial experts.
AC members are responsible for tasks that require high degrees
of accounting sophistication (DeFond et al., 2005). Accordingly, we
contend that AC members with public accounting sourced expertise
(PAAFEs) are better positioned to facilitate timelier financial reporting
than AC members with CFO sourced expertise (CFOAFEs). Similar to
our arguments in H1, we contend that an AC can facilitate timelier
financial reporting through superior technical competency and dispute
resolution facilitation.
AC members should have knowledge of accounting concepts and the
auditing process to enhance their understanding of the financial
reporting process, recognize problems, ask probing questions of
management and auditor, and make leadership contributions to ACs
(Bull & Sharp, 1989; Lipman, 2004). The benefits of AC members with
public accounting experience is supported by prior research (DeZoort,
1997, 1998), in that AC members themselves contend that public
accounting expertise is vital for effective AC service. Moreover, the
changing nature of CFO responsibilities inherently increases the
variance in CFOAFE accounting competency, and thereby the potential
for a CFOAFE not to have the requisite technical competency efficiently
to navigate a discussion with the auditor or management concerning
significant accounting policies and unusual transactions. Conversely,
PAAFEs are more likely to possess the requisite accounting knowledge
because their experiences are more homogeneously centered on
accounting- and audit-related issues. While CFOAFEs are likely more
familiar with accounting issues than non-financial experts, PAAFEs
should, on average, possess greater accounting competency.
Increased accounting competency should facilitate more efficient
communications between the auditor and the AC concerning significant
accounting policies and unusual transactions. In fact, empirical evidence
(DeZoort, Hermanson, & Houston, 2008) suggests that PAAFEs are more
likely to support auditor proposed adjustments than non-PAAFEs.
PAAFEs' support of auditor-proposed adjustments ought to facilitate
timelier resolution of disputes and discussions of significant accounting
treatments, and thereby increase the efficiency of the financial reporting
process.
In summary, we expect that AC members with public accounting
experience will be more apt to facilitate effective financial reporting
systems and streamline discussions with auditors and management
than AC members with only CFO experience. Accordingly, we contend
that AC public accounting expertise will be associated with more timely
accounting information than AC CFO expertise. Formally stated as:
H2. The audit committee's public accounting financial expertise is more
positively associated with timeliness of financial reporting than the
audit committee's CFO accounting experience.
2.5. Audit committee chairs and timeliness
Our final set of hypotheses examines the audit committee chair
(ACC). We investigate ACCs because they are most responsible for over-
seeing the financial reporting process (Schmidt & Wilkins, 2013) and
are held responsible for breakdowns in the financial reporting process
(Engel, Hayes, & Wang, 2010; Farber, 2005; Srinivasan, 2005). Further,
Bromilow (2010) suggests that the ACC is the member of the AC that
determines its effectiveness. The ACC is the primary point of contact
between the AC and management, internal and external auditors
(PricewaterhouseCoopers, 2003). As a result, we expect the ACC to be
the AC member most responsible for and influential in the timeliness
of a company's financial reporting. Building upon H1 and H2, we expect
that AC accounting financial expertise will be most valuable when it is
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
5
provided by the ACC, and that ACC public accounting-sourced expertise
will result in more timely accounting information than ACC CFO-
sourced expertise:
H3a. The audit committee chair's accounting financial expertise is
positively associated with timeliness of financial reporting.
H3b. The audit committee chair's public accounting financial expertise
is more positively associated with timeliness of financial reporting than
the audit committee chair's CFO accounting experience.
3. Method
3.1. Development of sample
Our search for sample firms begins with firms that are included in
the S&P 500 for the years 2006 through 2008.15 We believe this time
period is particularly interesting because 2006 is the first year that
firms with more than $700 million in public float were required to
reduce their filing period to 60 days (SEC, 2002a).16 The majority of
respondents to the SEC's original proposal opposed the changes
(Bryant-Kutcher, Peng, & Zvinakis, 2013). Therefore, our sample
period is focused on a time period when auditors and companies are
required to perform more work in a shorter time period. We begin by
including firm-year observations that were included in the S&P 500
for our entire sample period. We exclude firm-year observations that
belong to the financial services industries (SIC 6000-699) and do not
have data required for our analyses, leaving a final sample of 996
firm-years (332 firms). For each firm-year in the final sample, we
hand-collected corporate governance data as well as AC members'
background and experience data from proxy statements, 10-K reports,
and other publicly available sources. We obtained accounting and
auditing data from COMPUSTAT and Audit Analytics. Table 1 presents
the industry distribution of the sample.17
3.2. Primary dependent variables
To test our hypotheses, we employ three measures used in prior
literature as proxies for timeliness — earnings announcement lag
(EAL), audit report lag (ARL), and SEC late filings (SECLATE). Consistent
with Krishnan and Yang (2009), we calculate EAL as the number of
days between a firm's fiscal year-end and the earnings announcement
date. Consistent with Schwartz and Soo (1996), we calculate ARL as
the number of days between a firm's fiscal year-end and the audit report
date. The third proxy for timeliness is SEC late filings (SECLATE), which,
consistent with Impink, Lubberink, van Praag, and Veenman (2012), is
an indicator variable that equals one if the firm has issued any SEC filing
beyond the required date within the fiscal year, and zero otherwise. As
discussed in the previous section, each proxy for timeliness captures a
distinct quality of reporting timeliness.18
15
Using S&P 500 firms is consistent with prior research (e.g., Klein, 2002; Krishnan &
Visvanathan, 2008).
16
Because all companies listed on the S&P 500 in 2006 had public floats in excess of $700
million, the accelerated filing deadlines affected the entire sample. However, the acceler-
ated filings were required for reports filed after December 15, 2006. Of our sample firms,
58 had fiscal year-ends prior to this date. Our results are similar when we exclude these
firms or include an indicator variable for firms with fiscal year end prior to December
15, 2006.
17
Industry classification is based on the two digit Standard Industrial Classification (SIC)
codes. Machinery, electrical and computer equipment, and chemicals, petroleum, rubber,
leather and stone industries comprise approximately 40% of the total firm-years for the
sample. To control for industry-specific effects on financial reporting timeliness, we in-
clude two-digit SIC indicator variables in our multivariate analyses.
18
We also test, but do not tabulate, FILE (the number of days between a firm's fiscal year-
end and the SEC filing date of the 10-K), which is highly correlated with ARL. Our results
are similar.
6 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx

Table 1 3.4. Control variables

Industry distribution.

Two-digit Industry
SIC code
1–14 Agriculture and mining 36
15–17 Construction and plumbing 18
20–21 Food and kindred products and cigarettes 54
22–23 Textile mill products and apparel 12
24–27 Lumber, furniture, paper, and printing 57
28–32 Chemicals, petroleum, rubber, leather and stone 144
33–34 Metal 36
35–39 Machinery, electrical and computer equip., scientific 252
instruments, miscellaneous manufacturing
40–48 Railroads, motor freight, transportation, communications 51
49 Electric, natural gas, water supply and waste management 90
50–52 Wholesale goods, building material, hardware retail 33
53–59 Stores merchandise, auto dealers, apparel, home furniture 96
stores, eating and drinking, misc. retail
70–79 Lodging services, business services, other services 96
80–99 Other 21
Total 996
3.3. Primary independent variables
To measure financial expertise, we follow Krishnan and Visvanathan
(2008) and assign AC members into categories of financial expertise
based on the hand-collected, publicly available background data. AC
members who have experience as a CPA, auditor, CFO, controller, or
chief accounting officer are classified as accounting financial experts
(AFEs). AC members who have experience as CEO or president of a
for-profit company are designated as non-accounting financial experts
(NAFEs). All other members are classified as non-financial experts
(NFEs). Consistent with Hoitash et al. (2009), we define the financial
expertise of the AC as the proportion of AFEs (NAFEs) on the AC as
AFEPER (NAFEPER), which represents the number of AFE (NAFE) AC
directors divided by the total number of directors on the AC.
For our tests relating to accounting expertise source, we categorize
AFEs into public accounting experts (PAAFEs) and CFO experts
(CFOAFEs).19 Specifically, PAAFE includes those that have an accounting-
based license (e.g., CPA and CMA) and/or have experience in public
accounting (i.e., auditing) while CFOAFE includes those that have experi-
ence only as a CFO, chief accounting officer, or controller.20 Finally, we rec-
ognize that directors can possess both PA and CFO experience. We define
these directors as BOTHAFEs.21 To control for the effects of these AC mem-
bers, we include them in our models as a separate categorization, but we
make no prediction as to their effect on financial reporting timeliness.
Further, we define the public accounting expertise of the AC as
PAPER, which is the number of PAAFE directors on the AC divided by
the total number of directors on the AC. Similarly, we capture the CFO
(BOTH) accounting expertise of the AC as CFOPER (BOTHPER), which is
the number of CFOAFE (BOTHAFE) AC directors divided by the total
number of directors on the AC. Finally, to test the association between
ACC financial expertise and timeliness (H3a), we classify each ACC
that is an AFE as CHAIRAFE. For our tests relating to the characteristics
of ACCs (H3b), we categorize CHAIRAFEs into public accounting chairs
(CHAIRPA) and CFO chairs (CHAIRCFO) and BOTH chairs (CHAIRBOTH).22
19
Our classification is similar to Engel et al. (2010) who classify AC chairs with training
or experience as a CFO as finance experts, and AC chairs with training and experience in
accounting as accounting experts. They note that this classification is narrower than the
proposed and final SOX regulations, but “highlights firms that have explicitly chosen an
audit committee chair with financial reporting expertise” (p. 142).
20
Less than one percent of our AFE directors hold a certification other than CPA certifi-
cation (CMA, CIA, CFE, etc.). We consider any certification to be consistent with our under-
lying construct of accounting-specific expertise, and classify these directors as CPAAFEs.
21
Appendix A provides examples of biographies used to classify directors' source of
expertise.
22
AC chairpersons with both CFO and public accounting experience make up only 5% of
our sample. In addition, the mean proportion of BOTHAFE directors to total number of AC
directors is only 4%.
Prior literature identifies a set of firm characteristics that explain
determinants of earnings announcement lag, audit report lag, and timing
of 10-K filings (e.g., Alford et al., 1994; Bronson, Hogan, Johnson, &
Ramesh, 2011; Ettredge et al., 2006; Sengupta, 2004). In addition to
these identified firm characteristics, we also control for firm-specific
governance characteristics that may affect the timeliness of accounting
information. In general, we expect that stronger governance is associated
with timelier financial reporting. Following DeFond et al. (2005) and
Krishnan and Visvanathan (2008), we construct a measure of strong
governance (SGOV) that equals 1 (0 otherwise) if GOV is greater than
or equal to the sample median where GOV is a summary measure of
corporate governance equal to the sum of six dichotomous governance
variables23:
LBSIZE dummy variable equal to 1 (0) if board size is less (more)
than sample median;
HBIND dummy variable equal to 1 (0) if the proportion of outside
directors is greater (less) than 60%;
HACSIZE dummy variable equal to 1 (0) if the proportion of the number
of directors on the AC to the total number of directors on
board is greater (less) than the sample median;
HACIND dummy variable equal to 1 if the AC is composed of solely
independent directors, 0 otherwise24;
LEINDEX dummy variable equal to 1 (0) if the entrenchment index is
less (greater) than the sample median25;
HINSTOWN dummy variable equal to 1 (0) if the percentage of institu-
tional ownership (INSTOWN) is greater (less) than the sample
median.
We also control for the separation of the roles of CEO and chairman
of the board (NODUAL) using a dummy variable coded as 1 if the CEO is
not the chairman of the board, and 0 otherwise. We control for AC-
specific characteristics, including AC legal expertise (ACLEGALPER),
number of AC meetings held during the year (ACMEET); average
number of years each AC member has been on the board (ACTENURE),
and average number of other public boards each AC member serves
(ACMULTIPLE; Dhaliwal et al., 2010; Farber, 2005; Klein, 2002;
Krishnan, Wen, & Zhao, 2011). Prior research finds that separation of
CEO and chairman of the board, AC legal expertise, AC tenure, and
multiple boards are indicators of good governance (Beasley, 1996;
Dhaliwal et al., 2010; Jensen, 1993; Klein, 2002; Krishnan et al., 2011);
therefore, we predict a negative coefficient on SGOV, NODUAL,
ACLEGALPER, ACTENURE, and ACMULTIPLE. Prior research is mixed
regarding the association between AC meetings and good governance
(c.f., Hoitash et al., 2009); thus, we make no prediction for ACMEET.
Concerning firm characteristics, we control for size (SIZE) using the
log of total assets, leverage using total liabilities divided by total assets
(LEVERAGE) and financial performance by using net earnings divided
by total assets (ROA). We control for a number of additional firm
characteristics using indicator variables (coded 1 if the condition exists
and 0 otherwise): extraordinary items (EI), number of segments
23
We also use, but do not tabulate, a board strength measure as employed by Hoitash
et al. (2009). Our results are similar using board strength rather than SGOV.
24
Though SOX requires ACs to be comprised of fully independent directors, we identify
“gray” directors as those with any business relationship with the firm, even though the
firm's proxy statements state that such relationships do not impair director independence.
Adopting this restricted sample does not change our findings.
25
The entrenchment index (EINDEX; Bebchuk, Cohen, & Ferrell, 2009), is a firm-level
composite measure of the threat of private benefit extraction using six Investor Responsi-
bility Research Center provisions (accordingly, the measure ranges from zero to six). A low
(high) EINDEX means that a firm has a strong (weak) governance system. DeFond et al.
(2005) and Krishnan and Visvanathan (2008) use the Gompers, Ishii, and Metrick
(2003) GINDEX. Data for the GINDEX is unavailable after 2006, and Bebchuk et al. (2009)
show that the six variables in the EINDEX drive the governance of the firm, therefore, we
replace GINDEX with EINDEX in building our SGOV measure.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
disclosed (SEGMENT), operating losses (LOSS), discontinued operations
(DISCOPS), foreign operations (FOROPS), listed on the New York Stock
Exchange (NYSE), merger or acquisition activity (MERGER; Ettredge
et al., 2006; Krishnan & Yang, 2009; Schwartz & Soo, 1996).26 We
also control for the number of analysts following the firm (ANALYST),
log of audit fees (AFEE), as well as for a number of additional audit
characteristics using indicator variables (coded 1 if the condition
exists): internal control weakness (ICW), whether the firm engaged a
Big 4 (BIG4) auditor and/or an industry specialist (AUDITORSPECIALIST),
had a fiscal year end of December or January (DECJAN), restated its
financial statement for that fiscal year (REST), or changed auditors
during the year (AUDITORCHANGE; Ettredge et al., 2006; Newton &
Ashton, 1989).27 Finally, we control for the current auditor tenure
(AUDITORTENURE).
We expect negative coefficients on SIZE, ROA, ANALYST, BIG4,
AUDITORSPECIALIST, NYSE, and AUDITORTENURE (Habib & Bhuiyan,
2011; Jaggi & Tsui, 1999). We expect positive coefficients on LEVERAGE,
EI, SEGMENT, LOSS, DISCOPS, FOROPS, MERGER, AFEE, ICW, REST, and
AUDITORCHANGE (Ettredge et al., 2006; Jaggi & Tsui, 1999; Schwartz &
Soo, 1996). Prior research on the effect of fiscal year end on timeliness
is mixed, so we make no prediction about DECJAN (Ashton et al., 1987;
Knechel & Payne, 2001). To control for industry-specific effects, we
also include industry-indicator variables based on two-digit SIC indus-
try classifications for all of our analyses. Finally, we include two year-
dummy variables that equal 1 for years 2007 and 2008, respectively,
and 0 otherwise to control for time-specific effects (coefficients for the
industry-dummy variables and the year-dummy variables are not
tabulated). Table 2 presents definitions of all analyzed variables.28
3.5. Research design
H1 states that the audit committee's accounting financial expertise
is positively associated with financial reporting timeliness. We use
the following empirical model to test the association between AC
accounting financial expertise and financial reporting timeliness:
TIMELINESS ¼ β0 þ β1 AFEPER þ β j CONTROLS þ Industry Indicators
þ Year Indicators þ ε ð1Þ
where TIMELINESS is our measure of financial reporting timeliness (EAL,
ARL, or SECLATE). CONTROLS represents the vector of control variables
that were previously discussed. A negative, significant β1 in Eq. (1)
supports H1.
H2 states that the audit committee's public accounting financial
expertise is positively associated with financial reporting timeliness.
We use the following empirical model to test the association between
AC public accounting financial expertise and financial reporting
timeliness:
TIMELINESS ¼ β0 þ b1 PAPER þ β2 CFOPER þ β3 BOTHPER þ β j CONTROLS
þ Industry Indicators þ Year Indicators þ ε
ð2Þ
β1 b β2 in Eq. (2) supports H2.
26
Results are similar when we use market value of equity to proxy for firm size.
27
Industry specialists have the largest annual (two digit SIC industry) market share and
an annual share that is 10 percentage points greater than the nearest competitor (Reichelt
& Wang, 2010).
28
To mitigate the influence of outliers on the results of the analyses, we winsorize all
continuous variables at the 0.5 and 99.5 percentiles.
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
7
H3a (H3b) tests the association between reporting timeliness and
ACC accounting financial expertise (public accounting financial exper-
tise), we modify Eqs. (1) and (2) as follows:
TIMELINESS ¼ β0 þ β1 CHAIRAFE þ β2 MEMBERAFEPER þ β j CONTROLS
þ Industry Indicators þ Year Indicators þ ε
ð3Þ
TIMELINESS ¼ β0 þ β1 CHAIRPA þ β2 CHAIRCFO þ β3 CHAIRBOTH
þ β4 MEMBERAFEPER þ β j CONTROLS ð4Þ
þ Industry Indicators þ Year Indicators þ ε:
A negative, significant β1 in Eq. (3) supports H3a, and β1 b β2 in
Eq. (4) supports H3b. To isolate the incremental effect of the ACC,
we include the variable MEMBERAFEPER, which is measured as AFE
members who are not the ACC divided by the total number of nonchair
AC members. This controls for the accounting financial expertise of AC
members who are not the ACC.
4. Results
4.1. Descriptive statistics
Table 3 presents descriptive data for the pooled sample. The mean
(median) value for EAL is 33.69 (31.00) days, while the mean (median)
value for ARL is 54.97 (56.00), indicating that, on average, our sample
firms release preliminary earnings reports approximately three weeks
prior to signature of the audit report date. In addition, approximately
6% of our sample firms had late filings with the SEC.
We find that the average AC in our sample is comprised of approxi-
mately 24 percent accounting financial experts (AFEPERs). Of the
accounting financial experts, based on biographical information, we
classified 6% as public accounting experts (PAPER) and 14% as CFO
experts (CFOPER). Approximately 4% of our AC accounting experts
have both accounting and CFO experience (BOTHPER). The remaining
directors consist of 62 percent non-accounting financial experts
(NAFEPER), and 14 percent non-financial experts (NFEPER). Thirty-four
percent of our sample firms have an AFE serving as the ACC (CHAIRAFE),
of which 11% have public accounting experience (CHAIRPA), 18% have
only CFO experience (CHAIRCFO), and 5% have both PA and CFO experi-
ence (CHAIRBOTH). The average AC consists of six percent legal experts
(ACLEGALPER). We find that our average AC meets (ACMEET) nine times
each year, and that our average AC member has been on the board
for seven years and holds 2.5 board seats at other publicly traded
companies.
Our firm characteristic control variables indicate that the sample
consists of large, profitable firms. That is, the mean natural log of our
sample firms' total assets is 9.32 (SIZE), which is equivalent to about
$11.2 billion. Our sample firms had an average ROA of 6% and only 11%
of our firms reported a loss.29 Our sample firms were followed by an
average of 14 analysts (ANALYST), and 80% of our sample firms were
listed on the NYSE (NYSE). Approximately 4% of the sample firm-years
contain an extraordinary item (EI), while about 35% reported
discontinued operations (DISCOPS) and 12% engaged in a merger or
29
While we control for several firm characteristics that may influence the timeliness of
earnings releases, the content of the earnings may create incentives to delay earnings (e.g.,
earnings that miss analysts' forecasts). In untabulated results, we include and indicator
variable equal to 1 for firms that miss analysts' forecast and 0 otherwise. Approximately
31% of our firm year observations missed analyst forecasts. Our primary results are similar
when including this additional control variable.
8 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx

Table 2
Variable definitions.

Variable name Variable measurement

EAL Days between a firm's fiscal year-end and earnings announcement date for firm i in year t.
ARL Days between a firm's fiscal year-end and signature date of the audit report for firm i in year t.
SECLATE 1 if a financial report for the current fiscal year is filed late to the SEC, 0 otherwise.

Audit committee accounting financial expertise

AFEPER The number of audit committee (AC) directors who qualify as AFEs divided by the total number of directors on the AC for firm i in year t.
MEMBERAFEPER The number of non-chairman AC directors who qualify as AFEs divided by the total number of non-chairman directors on the AC for firm i in year t.
PAPER The number of AC directors who are classified as public accounting experts divided by the total number of directors on the AC for firm i in year t.
CFOPER The number of AC directors who are classified as having CFO expertise divided by the total number of directors on the AC for firm i in year t.
BOTHPER The number of AC directors who have both public accounting and CFO expertise divided by the total number of directors on the AC for firm i in year t.
CHAIRAFE 1 if AC chairman (ACC) qualifies as an AFE for firm i in year t, and 0 otherwise.
CHAIRPA 1 if ACC has public accounting expertise for firm i in year t, and 0 otherwise.
CHAIRCFO 1 if ACC has CFO expertise for firm i in year t, and 0 otherwise.
CHAIRBOTH 1 if ACC has both public accounting and CFO expertise for firm i in year t, 0 otherwise.

Governance characteristics
NAFEPER The number of AC directors who qualify as a non-accounting financial expert divided by the total number of directors on the AC for firm i in year t.
SGOV Composite governance score based on DeFond et al. (2005).
NODUAL 1 if the CEO is not the chairman of the board of firm i in year t, and 0 otherwise.
ACLEGALPER The number of AC directors who qualify as legal experts divided by the total number of directors on the AC for firm i in year t.
ACMEET The number of meetings held by the AC for firm i in year t.
ACTENURE Average number of years each AC member has been on the board.
ACMULTIPLE Average number of other public boards each AC member serves.
BLOCK 1 if the firm has a non-insider holder of 5% or more of the outstanding shares, and 0 otherwise.

Other firm characteristics

SIZE The natural log of total assets for firm i in year t.
AGE The number of years since formation for firm i in year t.
LEVERAGE Total liabilities divided by total assets for firm i in year t.
STOCK ISSUE 1 if the firm has proceeds from the issuance of common stock greater than 5% of stockholders equity during the year, and 0 otherwise.
DEBT ISSUE 1 if the firm has proceeds from the issuance of debt during the year, and 0 otherwise.
ROA Net earnings divided by total assets.
EI 1 (0) if firm i (does not) reports an extraordinary item in year t.
SEGMENT The number of segments disclosed by firm i in year t.
LOSS 1 if income before extraordinary items is a loss for firm i in year t, and 0 otherwise.
DISCOPS 1 if firm i has discontinued operations in year t, and 0 otherwise.
FOROPS 1 if firm i has foreign operations in year t, and 0 otherwise.
AEMP Total assets divided by number of employees.
NYSE 1 (0) if firm i is (not) listed in the NYSE/AMEX stock exchanges in year t.
MERGER 1 (0) if firm i (did not) engage in merger and acquisition activity in the fiscal year.
ICW 1 if firm i reported an internal control weakness in year t, and 0 otherwise.
PAST ICW 1 if firm i reported any internal control weakness during the past five years, and 0 otherwise.
AFEE The natural log of total audit fees for firm i in year t.
ANALYST The number of analyst following the firm for firm i in year t.
AUDITORSPECIALIST 1 if firm i is audited by an auditor industry specialist in year t, and 0 otherwise.
BIG4 1 if firm i is audited by a Big 4 auditor in year t, and 0 otherwise.
DECJAN 1 if firm i has a fiscal year-end of December or January in year t, and 0 otherwise.
REST 1 if the firm restated its financial statements for the fiscal year t, and 0 otherwise.
PAST REST 1 if firm i announced any restatement of financials during the past five years, and 0 otherwise.
AUDITORCHANGE 1 if firm i experienced a change in auditor in year t, and 0 otherwise.
AUDITORTENURE The tenure of auditor for firm i in year t.
LITIGATION 1 if firm i belongs to a litigious industry in year t, and 0 otherwise. Litigious industries are defined as SIC codes 2833–2836, 3570–3577, 3600–3674,
5200–5961, and 7370 (Carcello et al., 2006).

acquisition (MERGER). Only 2% of the sample firms reported an internal
control weakness (ICW) during the fiscal year, while about 13% restated
their financial statements (REST) during the sample period. Only
5% of our sample had an auditor change during the fiscal year
(AUDITORCHANGE). Finally, auditor industry specialists audited
about 29% of our sample firm-years (AUDITORSPECIALIST), and about
73% of the firm-years have a fiscal year in December or January
(DECJAN).
Prior to implementing multivariate regression analysis, we examine
the Pearson and Spearman correlations among the variables used in
each regression analysis. The correlation matrices are not reported,
given the large number of variables employed across all regression
models. While there are a number of significant correlations, they are
not sufficiently large to pose multicollinearity threats. The highest
variance inflation factor of 3.5 (untabulated) is well below the threshold
of 10, beyond which multicollinearity may be a problem (Kennedy,
1992).
4.2. Multivariate analysis
4.2.1. AC accounting financial expertise
Table 4 presents the results of the regressions used to test H1 and H2.
H1 predicts that AC accounting financial expertise is positively associated
with financial reporting timeliness. Statistics for all of our multivariate
analyses are based on Huber–White standard errors that correct for clus-
tering by firm and are robust to heteroskedasticity and serial correlation
(Huber, 1967; Rogers, 1993; White, 1980).
Columns (1), (2), and (3) of Table 4 report regression results from
the test of H1. Consistent with H1, we find that AFEPER is significantly,
negatively associated with both EAL (p = 0.027) and ARL (p = 0.030),
which suggests that higher proportions of AFEs on ACs are associated
with timelier financial reporting.30 However, AFEPER is not significantly
30
We also examined the log transformation of our timeliness variables and find similar
results using this specification.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx 9

Table 3 4.2.2. PA vs. CFO expertise

Descriptive statistics of variable included in Eqs. (1)–(4) for the sample firms (N = 996). Columns (4), (5) and (6) of Table 4 report our regression results
Variable Mean Min Q1 Median Q3 Max Std. Dev. that test the association between PAPER and CFOPER and timeliness.
Dependent variables
Consistent with H2, we find that PAPER is significantly, negatively
EAL 33.69 10.00 25.00 31.00 39.00 77.00 11.57 associated with EAL, ARL, and SECLATE (p = 0.007, 0.003, and 0.001,
ARL 54.97 27.00 50.00 56.00 58.00 212.00 15.52 respectively), which suggests that a higher proportion of public
SECLATE 0.058 0.00 0.00 0.00 0.00 1.00 0.234 accounting experts on ACs is associated with timelier financial
Audit committee accounting financial expertise reporting. However, this association is not found for CFO accounting
AFEPER 0.24 0.00 0.00 0.25 0.33 1.00 0.22 experts for EAL, ARL, or SECLATE (p = 0.449, 0.105, and 0.907,
MEMBERAFEPER 0.20 0.00 0.00 0.00 0.33 1.00 0.26 respectively). A test of the differences in coefficients indicates that the
PAPER 0.06 0.00 0.00 0.00 0.00 0.67 0.13
coefficient on PAPER is significantly more negative than CFOPER for
CFOPER 0.14 0.00 0.00 0.00 0.25 0.75 0.18
BOTHPER 0.04 0.00 0.00 0.00 0.00 0.67 0.11 EAL, ARL, and SECLATE (p = 0.029, 0.036 and b0.01, respectively),
CHAIRAFE 0.34 0.00 0.00 0.00 1.00 1.00 0.48 consistent with H2. The results for our control variables are similar to
CHAIRPA 0.11 0.00 0.00 0.00 0.00 1.00 0.31 those presented in Columns (1), (2), and (3). BOTHPER is negatively
CHAIRCFO 0.18 0.00 0.00 0.00 0.00 1.00 0.39 associated with EAL (p = 0.025), but not with ARL and SECLATE
CHAIRBOTH 0.05 0.00 0.00 0.00 0.00 1.00 0.22
(p = 0.546 and 0.776, respectively).31
Governance characteristics
NAFEPER 0.62 0.00 0.50 0.67 0.75 1.00 0.24
4.2.3. Audit committee chair financial accounting expertise
SGOV 0.54 0.00 0.00 1.00 1.00 1.00 0.49
NODUAL 0.32 0.00 0.00 0.00 1.00 1.00 0.47 H3 predicts that ACC accounting financial expertise is positively
ACLEGALPER 0.06 0.00 0.00 0.00 0.00 0.60 0.12 associated with financial reporting timeliness. Table 5 presents the
ACMEET 9.45 2.00 7.00 9.00 11.00 38.00 3.39 results of the regressions used to test H3a and H3b. Columns (1), (2),
ACTENURE 7.25 1.75 5.15 7.84 9.75 21.00 3.67
and (3) of Table 5 report regression results from the test for H3a. We
ACMULTIPLE 2.53 0.00 1.75 2.40 3.25 5.33 1.10
find that CHAIRAFE is not significantly associated with either EAL or
Firm economic characteristics SECLATE (p = 0.120 and 0.108, respectively), but is significantly nega-
SIZE 9.32 7.15 8.45 9.31 10.14 12.34 1.13
tively associated with ARL (p = 0.097). Therefore, we provide weak
LEVERAGE 0.59 0.14 0.47 0.59 0.72 1.46 0.19
ROA 0.06 −0.34 0.04 0.07 0.10 0.28 0.09
support for H3a. We do find that the proportion of member AFEs on
EI 0.04 0.00 0.00 0.00 0.00 1.00 0.19 the AC is positively associated with timeliness (MEMBERAFEPER) for
SEGMENT 3.14 1.00 1.00 3.00 5.00 9.00 2.07 EAL and ARL (p = 0.034 and 0.027, respectively), but there is no associ-
LOSS 0.11 0.00 0.00 0.00 0.00 1.00 0.31 ation between NAFEPER and timeliness.
DISCOPS 0.35 0.00 0.00 0.00 1.00 1.00 0.48
FOROPS 0.77 0.00 1.00 1.00 1.00 1.00 0.42
NYSE 0.80 0.00 1.00 1.00 1.00 1.00 0.40 4.2.4. Audit committee chair PA vs. CFO expertise
MERGER 0.12 0.00 0.00 0.00 0.00 1.00 0.32 While our tests of H3a provide only weak evidence that ACC
ANALYST 14.19 3.00 9.00 14.00 18.00 31.00 6.28 accounting financial expertise is associated with financial reporting
AFEE 15.64 13.57 15.07 15.57 16.19 17.94 0.87
ICW 0.02 0.00 0.00 0.00 0.00 1.00 0.14
timeliness, our tests for H3b provide an interesting observation for the
AUDITORSPECIALIST 0.29 0.00 0.00 0.00 1.00 1.00 0.45 source of ACC experience and timeliness. Columns (4), (5), and (6) of
BIG4 0.98 0.00 1.00 1.00 1.00 1.00 0.09 Table 5 report our regression results that test the association between
DECJAN 0.73 0.00 0.00 1.00 1.00 1.00 0.45 CHAIRPA and CHAIRCFO and timeliness. Consistent with H3b, we find
REST 0.13 0.00 0.00 0.00 0.00 1.00 0.33
that CHAIRPA is significantly, negatively associated with EAL, ARL, and
AUDITORCHANGE 0.05 0.00 0.00 0.00 0.00 1.00 0.21
AUDITORTENURE 16.22 1.00 7.00 14.00 22.00 35.00 10.49 SECLATE (p = 0.006, 0.001, and 0.026, respectively), but CHAIRCFO is
not associated with EAL, ARL, or SECLATE (p = 0.975, 0.746, and 0.487,
Note: see Table 2 for variable definitions.
respectively). The difference between coefficients indicates that the
CHAIRPA is significantly more negative than CHAIRCFO for EAL, ARL,
and SECLATE (p = 0.010, 0.021, and 0.067, respectively), which is also
consistent with H3b. These results suggest that the presence of an ACC
with public accounting experience is positively associated with timeli-
associated with SECLATE. The association is not found for non-
ness; however, this association is not found for CFOACCs. This result
accounting financial experts (NAFEPER) in any of the timeliness regres-
highlights how one AC member personal characteristic, source of
sions. The results also indicate ACMEET is negatively related to EAL
accounting expertise, differentially influences financial reporting
(p = 0.011), and ACTENURE is negatively associated with EAL
timeliness.
(p = 0.055). In Column (2), ACTENURE is negatively associated with
ARL (p = 0.064), which is consistent with our expectation. In Column
4.3. Controlling for endogeneity
(3), ACMEET is also positively associated with SECLATE (p b 0.001).
Interestingly, NODUAL is marginally associated with longer EAL
Larcker, Richardson, and Tuna (2007) note that endogeneity is a
(p = 0.94) which is opposite our prediction. None of the other
potential concern in corporate governance research and Carcello et al.
governance characteristics is significantly associated with timeliness.
(2006) note that a company's selection of AC members with certain
Regarding firm characteristics, SIZE, ROA, ANALYST, AFEE, ICW, and
qualifications is probably not random. This suggests that factors
REST are significantly associated with EAL (all p-values b 0.019), consis-
affecting financial reporting timeliness and the presence of accounting
tent with our expectations. However, SEGMENT and DISCOPS are signif-
experts on the AC may be endogenously determined, which could bias
icantly negatively associated with timeliness, which is opposite our
our regression analysis. To control for potential endogeneity, we first
prediction. With respect to ARL in Column (2), SIZE, ROA, and EI are
estimate a probit regression model to determine the predicted probabil-
significantly associated (all p-values b 0.037) consistent with our
ity of having an accounting financial expert on the audit committee. The
expectations. AUDITORSPECIALIST is positively associated with ARL
(p = 0.065) which is opposite our prediction. In Column (3), ROA, EI, 31
For the results reported in Table 4, we also run specifications where we include raw
NYSE, ANALYST, REST, and AUDITORCHANGE are significantly associated
number of accounting financial, public accounting, and CFO expertise (instead of propor-
with SECLATE (all p-values b 0.096), which is consistent with our tions). The untabulated results using raw numbers of expertise are similar to that reported
expectations. in Table 4.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
10 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx

Table 4
Financial reporting timeliness and audit committee accounting financial expertise.

Variable Expected sign (1) (2) (3) (4) (5) (6)

EAL ARL SECLATE EAL ARL SECLATE

AFEPER − −4.495** −6.625** −0.458

(0.027) (0.030) (0.366)
PAPER − −8.110*** −12.583*** −7.157***
(0.007) (0.003) (0.001)
CFOPER ? −1.973 −5.553 −0.154
(0.449) (0.105) (0.907)
BOTHPER ? −8.619** −4.727 −0.534
(0.025) (0.546) (0.776)
NAFEPER ? −3.115 2.860 0.879 −3.311 2.643 0.220
(0.139) (0.513) (0.503) (0.115) (0.539) (0.855)
SGOV − 0.777 0.526 0.290 0.785 0.587 0.230
(0.253) (0.678) (0.449) (0.248) (0.644) (0.534)
NODUAL − 1.221* 0.020 −0.050 1.264* 0.074 −0.097
(0.094) (0.986) (0.446) (0.082) (0.948) (0.399)
ACLEGALPER − 2.054 −1.131 −0.083 1.951 −0.988 −0.473
(0.254) (0.432) (0.477) (0.532) (0.440) (0.365)
ACMEET ? −0.278** 0.121 0.181*** −0.287*** 0.119 0.175***
(0.011) (0.469) (0.000) (0.009) (0.486) (0.000)
ACTENURE − −0.147* −0.211* −0.002 −0.139* −0.204* 0.002
(0.055) (0.064) (0.482) (0.063) (0.069) (0.974)
ACMULTIPLE − 0.449 −0.230 0.089 0.503 −0.179 0.081
(0.168) (0.360) (0.634) (0.121) (0.394) (0.665)
SIZE − −3.076*** −2.675*** −0.045 −3.104*** −2.614*** −0.011
(0.000) (0.003) (0.439) (0.000) (0.002) (0.486)
LEVERAGE + −2.402 1.889 0.020 −2.427 2.421 0.489
(0.235) (0.322) (0.492) (0.240) (0.273) (0.298)
ROA − −13.333** −20.497*** −2.297* −14.117** −21.283*** −3.232**
(0.019) (0.002) (0.087) (0.014) (0.002) (0.038)
EI + 1.634 8.883** 0.868** 1.296 8.736** 0.697
(0.159) (0.037) (0.042) (0.219) (0.040) (0.102)
SEGMENT + −0.367** −0.636*** −0.086 −0.404** −0.672*** −0.106
(0.046) (0.007) (0.519) (0.029) (0.005) (0.394)
LOSS + 1.702 −2.469 0.401 1.544 −2.581 0.285
(0.144) (0.175) (0.277) (0.170) (0.163) (0.342)
DISCOPS + −1.679** −0.406 −0.138 −1.637** −0.368 −0.117
(0.026) (0.682) (0.754) (0.029) (0.709) (0.793)
FOROPS + −0.250 −0.487 −0.358 −0.482 −0.765 −0.396
(0.847) (0.695) (0.496) (0.713) (0.555) (0.473)
NYSE − −0.670 −0.204 −0.925** −0.835 −0.211 −0.997**
(0.288) (0.469) (0.024) (0.244) (0.468) (0.017)
MERGER + 0.313 1.009 −0.638 0.417 1.041 −0.488
(0.389) (0.311) (0.307) (0.352) (0.305) (0.455)
ANALYST − −0.333*** −0.097 −0.043* −0.317*** −0.099 −0.035
(0.000) (0.195) (0.091) (0.000) (0.182) (0.146)
AFEE + 2.716*** 1.109 0.034 2.694*** 1.091 0.055
(0.000) (0.131) (0.461) (0.000) (0.137) (0.436)
ICW + 11.764*** 3.039 0.018 11.794*** 2.991 0.275
(0.000) (0.287) (0.488) (0.000) (0.293) (0.362)
AUDITORSPECIALIST − −0.596 1.655* 0.211 −0.520 1.583* 0.209
(0.235) (0.065) (0.591) (0.264) (0.096) (0.294)
BIG4 ? 2.512 0.630 2.766 0.894
(0.534) (0.848) (0.528) (0.786)
DECJAN ? −0.115 −2.212 −0.912** −0.143 −2.374 −0.944**
(0.902) (0.320) (0.047) (0.879) (0.281) (0.043)
REST + 2.494** 1.404 0.722* 2.501** 1.425 0.940**
(0.015) (0.248) (0.096) (0.013) (0.244) (0.042)
AUDITORCHANGE + 1.700 −0.395 0.855** 1.468 −0.668 0.678*
(0.153) (0.750) (0.022) (0.190) (0.597) (0.067)
AUDITORTENURE − −0.017 −0.015 0.008 −0.022 −0.018 0.008
(0.295) (0.362) (0.630) (0.247) (0.338) (0.659)
INTERCEPT ? 37.789*** 66.484*** −19.795*** 39.455*** 65.757*** −19.089***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
p-Value for test of PAPER b CFOPER 0.029** 0.036** b0.01***
Industry Indicators YES YES YES YES YES YES
Year Indicators YES YES YES YES YES YES
Number of observations 996 996 996 996 996 996
R2/pseudo-R2 0.414 0.142 0.216 0.418 0.145
p-Value for F-statistic/Wald chi2 b0.01 b0.01 b0.01 b0.01 b0.01 b0.01
Area under ROC curve 0.817 0.844

Notes: see Table 2 for variable definitions. In columns (3) and (6), the BIG4 variable is excluded since BIG4 = 0 predicts failure perfectly. The first row in each cell reports the coefficient
estimate and the second row reports the p-value (in parentheses), where p-values are one-tailed for variables with an expected sign, and two-tailed otherwise. ***, **, and * denote
significance at the 0.01, 0.05, and 0.10 levels, respectively.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx 11

Table 5
Financial reporting timeliness and audit committee chairman accounting financial expertise.

Variable Expected sign (1) (2) (3) (4) (5) (6)

EAL ARL SECLATE EAL ARL SECLATE

CHAIRAFE − −0.943 −1.578* −0.530

(0.120) (0.097) (0.108)
CHAIRPA − −2.651*** −4.070*** −1.329**
(0.006) (0.001) (0.026)
CHAIRCFO ? 0.030 −0.514 −0.327
(0.975) (0.746) (0.487)
CHAIRBOTH ? −0.787 −0.058 −0.273
(0.606) (0.986) (0.681)
MEMBERAFEPER − −3.344** −5.477** 0.012 −3.645** −5.932** −0.145
(0.034) (0.027) (0.990) (0.024) (0.020) (0.443)
NAFEPER ? −2.935 2.670 0.900 −3.193 2.424 0.718
(0.159) (0.542) (0.492) (0.127) (0.585) (0.582)
SGOV − 0.779 0.546 0.294 0.682 0.413 0.245
(0.253) (0.668) (0.429) (0.312) (0.746) (0.506)
NODUAL − 1.216* 0.002 −0.099 1.248* 0.048 −0.123
(0.095) (0.999) (0.394) (0.085) (0.967) (0.372)
ACLEGALPER − 2.092 −1.382 0.116 1.845 −1.577 0.069
(0.502) (0.418) (0.934) (0.557) (0.407) (0.959)
ACMEET ? −0.280** 0.121 0.183*** −0.276** 0.128 0.182***
(0.010) (0.469) (0.000) (0.011) (0.445) (0.000)
ACTENURE − −0.146* −0.214* −0.009 −0.141* −0.208* −0.009
(0.056) (0.060) (0.423) (0.061) (0.063) (0.422)
ACMULTIPLE − 0.457 −0.213 0.065 0.499 −0.163 0.073
(0.170) (0.376) (0.737) (0.136) (0.407) (0.710)
SIZE − −3.065*** −2.657*** −0.040 −3.091*** −2.694*** −0.027
(0.000) (0.003) (0.446) (0.000) (0.003) (0.463)
LEVERAGE + −2.328 2.022 −0.140 −2.088 2.478 0.064
(0.248) (0.309) (0.885) (0.306) (0.267) (0.473)
ROA − −13.191** −20.220*** −2.132* −13.879** −21.046*** −2.233*
(0.021) (0.002) (0.100) (0.017) (0.002) (0.095)
EI + 1.694 8.984** 0.812** 1.530 8.793** 0.758*
(0.149) (0.038) (0.046) (0.175) (0.039) (0.065)
SEGMENT + −0.358* −0.619*** −0.093 −0.380** −0.654*** −0.097
(0.051) (0.008) (0.478) (0.040) (0.007) (0.453)
LOSS + 1.699 −2.449 0.492 1.543 −2.644 0.467
(0.195) (0.184) (0.229) (0.171) (0.167) (0.244)
DISCOPS + −1.712** −0.451 −0.068 −1.630** −0.354 −0.063
(0.024) (0.644) (0.877) (0.031) (0.720) (0.886)
FOROPS + −0.291 −0.546 −0.348 −0.617 −0.994 −0.407
(0.823) (0.662) (0.506) (0.641) (0.434) (0.439)
NYSE − −0.635 −0.192 −0.971** −0.580 −0.062 −0.972**
(0.298) (0.471) (0.018) (0.315) (0.491) (0.018)
MERGER + 0.329 1.031 −0.625 0.390 1.075 −0.591
(0.383) (0.307) (0.324) (0.362) (0.299) (0.356)
ANALYST − −0.332*** −0.097 −0.047* −0.331*** −0.104 −0.046*
(0.000) (0.194) (0.073) (0.000) (0.171) (0.090)
AFEE + 2.697*** 1.073 0.057 2.776*** 1.221 0.064
(0.000) (0.138) (0.433) (0.000) (0.121) (0.425)
ICW + 11.799*** 3.098 −0.018 11.856*** 3.174 0.125
(0.000) (0.284) (0.977) (0.000) (0.279) (0.426)
AUDITORSPECIALIST − −0.571 1.691* 0.213 −0.580 1.619* 0.193
(0.245) (0.063) (0.590) (0.242) (0.093) (0.621)
BIG4 ? 2.425 0.478 2.400 0.496
(0.547) (0.884) (0.555) (0.878)
DECJAN ? −0.117 −2.201 −0.919** −0.194 −2.375 −0.938**
(0.901) (0.323) (0.044) (0.837) (0.280) (0.040)
REST + 2.467** 1.371 0.686 2.455** 1.353 0.709*
(0.015) (0.252) (0.105) (0.015) (0.255) (0.095)
AUDITORCHANGE + 1.724 −0.349 0.866** 1.554 −0.591 0.874**
(0.150) (0.778) (0.020) (0.177) (0.641) (0.020)
AUDITORTENURE − −0.017 −0.015 0.007 −0.019 −0.020 0.006
(0.301) (0.359) (0.691) (0.278) (0.318) (0.748)
INTERCEPT ? 38.269*** 63.462*** −19.066*** 37.246*** 65.766*** −18.898***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
p-Value for test of PAPER b CFOPER 0.010*** 0.021** 0.067*
Industry Indicators YES YES YES YES YES YES
Year Indicators YES YES YES YES YES YES
Number of observations 996 996 996 996 996 996
R2/pseudo-R2 0.414 0.143 0.220 0.417 0.147 0.225
p-Value for F-statistic/Wald chi2 b0.01 b0.01 b0.01 b0.01 b0.01 b0.01
Area under ROC curve 0.821 0.825

Notes: see Table 2 for variable definitions. In columns (3) and (6), the BIG4 variable is excluded since BIG4 = 0 predicts failure perfectly. The first row in each cell reports the coefficient
estimate and the second row reports the p-value (in parentheses), where p-values are one-tailed for variables with an expected sign, and two-tailed otherwise. ***, **, and * denote
significance at the 0.01, 0.05, and 0.10 levels, respectively.

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
12 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx

Table 6
Controlling for self-selection of having an AFE on the audit committee.

Panel A. Determinants of having an AFE on the audit committee

Variable Expected sign AFEDUM

SIZE − −0.125* 0.051

AGE − −0.001 0.353
LEVERAGE + 0.681** 0.012
ROA + −0.174 0.754
STOCK ISSUE + −0.116 0.627
DEBT ISSUE + −0.108 0.378
LITIGATION ? −0.113 0.324
SEGMENT + 0.056** 0.012
DISCOPS + 0.073 0.253
FOROPS + 0.264** 0.035
AEMP + −0.000 0.722
REST − −0.026 0.427
PAST REST − 0.109 0.422
ICW − 0.448 0.240
PAST ICW − −0.471** 0.014
SGOV + 0.159* 0.068
NODUAL + −0.143 0.189
BLOCK ? −0.028 0.818
NAFEPER − −4.331*** 0.000
ACLEGALPER − −3.102*** 0.000
ACMEET + 0.039** 0.011
ACTENURE ? −0.041*** 0.005
ACMULTIPLE ? −0.034 0.518
AFEE + 0.215** 0.016
BIG4 ? 0.392 0.446
AUDITORSPECIALIST ? 0.087 0.459
AUDITORTENURE ? −0.013*** 0.010
INTERCEPT 0.567 0.627
Number of observations 996
p-Value for Wald chi2 b0.01
Pseudo-R2 0.325
Area under ROC curve 0.855

Notes: see Table 2 for variable definitions. The first row in each cell reports the coefficient estimate and the second column reports the p-value in parentheses, where p-values
are one-tailed for variables with an expected sign, and two-tailed otherwise. ***, **, and * denote significance at the 0.01, 0.05, and 0.10 levels, respectively.

Panel B. Financial reporting timeliness and audit committee accounting financial expertise

Variable Expected (1) (2) (3) (4) (5) (6)

Sign EAL ARL SECLATE EAL ARL SECLATE

AFEPER − −4.561** −7.017** −0.471

(0.026) (0.023) (0.361)
PAPER − −8.127*** −12.689*** −7.219***
(0.007) (0.003) (0.001)
CFOPER ? −2.012 −5.794* −0.186
(0.442) (0.090) (0.888)
BOTHPER ? −8.692** −5.185 −0.543
(0.023) (0.510) (0.771)
LAMBDA ? 0.667 3.980 0.198 0.597 3.727 0.256
(0.695) (0.263) (0.764) (0.727) (0.295) (0.691)
INTERCEPT 37.377*** 64.030*** −19.684*** 39.084*** 63.442*** −19.028***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
p-Value for PAPER b CFOPER 0.030** 0.040** b0.01***
Control variables included YES YES YES YES YES YES
Industry and Year Indicators YES YES YES YES YES YES
Number of observations 996 996 996 996 996 996
p-Value for F-statistic/Wald chi2 b0.01 b0.01 b0.01 b0.01 b0.01 b0.01
R2/pseudo-R2 0.414 0.144 0.216 0.418 0.147 0.246
Area under ROC curve 0.816 0.844

Notes: we include all of the control variables used in Eqs. (1) and (2). For brevity, we do not tabulate the coefficients for the control variables. See Table 2 for variable definitions.
The first row in each cell reports the coefficient estimate and the second row reports the p-value (in parentheses), where p-values are one-tailed for variables with an expected sign,
and two-tailed otherwise. ***, **, and * denote significance at the 0.01, 0.05, and 0.10 levels, respectively.

Panel C. Financial reporting timeliness and audit committee chairman accounting financial expertise

AFECHAIR - −0.940 −1.561* −0.528

(0.121) (0.099) (0.109)
CPACHAIR − −2.646*** −4.041*** −1.329**
(0.006) (0.002) (0.026)
CFOCHAIR ? 0.037 −0.476 −0.320
(0.970) (0.764) (0.496)
CHAIRBOTH ? −0.802 −0.144 −0.271
(0.600) (0.965) (0.683)

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx 13

Table 6 (continued)

Panel C.
B. Financial
Financial reporting
reportingtimeliness
timelinessand
andaudit
auditcommittee
committeechairman
accounting financialfinancial
accounting expertise
expertise
Variable Expected (1) (2) (3) (4) (5) (6)

Sign EAL ARL SECLATE EAL ARL SECLATE

LAMBDA ? 0.670 4.034 0.066 0.676 3.992 0.119

(0.697) (0.252) (0.921) (0.695) (0.258) (0.854)
INTERCEPT 37.382*** 64.678*** −19.983*** 36.838*** 63.357*** −20.106***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
p-Value for PAPER b CFOPER 0.010*** 0.021** 0.067*
Control variables included YES YES YES YES YES YES
Industry and Year Indicators YES YES YES YES YES YES
Number of observations 996 996 996 996 996 996
p-Value for F-statistic/Wald chi2 b0.01 b0.01 b0.01 b0.01 b0.01 b0.01
R2/pseudo-R2 0.414 0.145 0.220 0.417 0.149 0.225
Area under ROC curve 0.821 0.825

Notes: we include all of the control variables used in Eqs. (3) and (4). For brevity, we do not tabulate the coefficients for the control variables. See Table 2 for variable definitions. The first
row in each cell reports the coefficient estimate and the second row reports the p-value (in parentheses), where p-values are one-tailed for variables with an expected sign, and two-tailed
otherwise. ***, **, and * denote significance at the 0.01, 0.05, and 0.10 levels, respectively.

dependent variable is AFEDUM, which is an indicator variable that
equals one if the firm has at least one accounting expert on the audit
committee and zero otherwise (c.f., Hoitash et al., 2009). Informed by
prior literature, we identify factors that can determine the presence of
an accounting expert on the audit committee (e.g., Agrawal & Chadha,
2005; Carcello et al., 2006; Dhaliwal et al., 2010; Hoitash et al., 2009;
Krishnan & Visvanathan, 2008). Such factors include economic factors,
quality of financial reporting and internal controls, corporate gover-
nance, and characteristics of the external auditor.
We measure economic factors by including variables that capture
company size (SIZE), firm age (AGE), leverage (LEVERAGE), profitability
(ROA), issuance of stock (STOCK ISSUE), issuance of debt (DEBT ISSUE),
membership in a high litigation industry (LITIGATION), and complexity
of the company (SEGMENT, DISCOPS, FOROPS, AEMP). We measure the
quality of financial reporting and internal controls by including whether
the company announced a restatement during the year (REST) or during
the past five years (PAST REST). We also control for whether the company
had an internal control weakness during the year (ICW) or during the
past five years (PAST ICW).
To control for corporate governance and other audit committee
characteristics, we include SGOV, CEO duality (NODUAL), block holder
ownership (BLOCK), proportion of non-accounting financial experts
and legal experts on the AC (NAFEPER, ACLEGALPER), number of AC
meetings held during the year (ACMEET), average number of years
each AC member has been on the board (ACTENURE), and average
number of other public boards each AC member serves (ACMULTIPLE).
Finally, we control for characteristics pertaining to the audit engage-
ment, including fees paid to the auditor (AFEE), auditor choice (BIG4,
AUDITORSPECIALIST), and tenure of the auditor (AUDITORTENURE).
The results of the probit regression are reported in Panel A of Table 6.
We find firms that are smaller and have higher leverage are likely to
have an accounting financial expert(s) on the AC (Agrawal & Chadha,
2005). We find some evidence that companies with more complex
operations (i.e., more segments and have foreign operations) are more
likely to have an AFE on the AC. The coefficient for PAST ICW is negative
and significant (p b 0.05), suggesting that AFEs are more likely to serve
on the audit committee of firms with fewer internal control problems in
the past. AFEs are also more likely to serve in companies with stronger
governance (i.e., higher SGOV score), and on audit committees that
have lower proportions of non-accounting financial experts and legal
experts, hold more meetings, and have less tenured directors. Finally,
firms with accounting expertise on the AC pay higher audit fees
(Abbott et al., 2004) and have auditors with shorter tenure.
From the probit regression, we calculate the Inverse Mills ratio
(LAMBDA), which is the ratio of the probability density function to the
cumulative distribution function, and include it as an additional explan-
atory variable in Eqs. (1) through (4). As reported in Panel B and Panel C
of Table 6, we find similar results to those reported in Tables 4 and 5.
Also, the coefficients for LAMBDA are not significant in any of the speci-
fications reported in Panel B and Panel C of Table 6. Overall, the findings
reported in Panel B and Panel C of Table 6 are consistent with our
hypotheses and help alleviate concerns that the primary results are
driven by endogeneity.
5. Conclusions and limitations
Our study makes several important contributions to the audit
committee literature. First, we contribute to the ongoing debate
on the appropriate definition of an accounting financial expert
(c.f., Dhaliwal et al., 2010). Specifically, our results favor the SEC's
original narrow definition and its purpose in mandating an AFE being
designated on the AC, in that we observe that AC accounting financial
expertise (under a narrow definition) complements corporate gover-
nance and is associated with increased financial reporting timeliness.
Second, we examine the influence of more specific personal charac-
teristics of AC members (c.f., Bedard & Gendron, 2010) – in particular,
accounting financial expertise source – on the effectiveness of AC
members and AC chairs in the post-SOX era. Given the significant
increase in the number of financial experts serving on ACs in the post-
SOX period, and because researchers, the SEC, and U.S. stock exchanges
continue to apply the broad definition of financial expertise, our results
can have potential implications for these stakeholders. That is, given
the differing effects of AC members' expertise source, we suggest
researchers consider examining AC AFEs based on additional AC
member personal attributes. Prior research typically combines AFEs
homogenously; however, we contend that the combination of AFEs
might result in the masking of otherwise discernible significant effects,
similar to what has been found in the literature when using a broad
definition of financial expertise. While pragmatically challenging to
institute further restrictions on who ought to be considered an AFE,
we believe that refining the AC research strategy will allow for a more
precise understanding of the different attributes that AC members
with varying backgrounds bring to a board of directors.
Finally, our study is one of the few studies to examine the effect of
the ACC financial expertise on financial reporting timeliness. Despite
the fact that the ACC is responsible for driving the agenda, conducting
the meeting, and coordinating interactions between meetings, very
little research has examined separately the role of the ACC in facilitating
effective AC performance (Bedard & Gendron, 2010); Carcello et al.
(2011) describe this as “an unfortunate oversight” and an area that is
“worthy of future study” (p. 26).
This study has limitations that provide future research opportuni-
ties. First, we document a negative association between accounting
financial expertise on the AC and audit report lag in the first three fiscal

Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
14 J.L. Abernathy et al. / Advances in Accounting, incorporating Advances in International Accounting xxx (2014) xxx–xxx
years subsequent to the SEC requirement that the filing of the audit
report be completed within sixty days. While we were unable to find
evidence that more recent sample years would contribute to an alterna-
tive finding because our entire sample was required to comply with the
SEC's increased filing requirements, future research could investigate
this issue in subsequent periods as companies adjust to the changing
regulation.
Second, this study focuses on large S&P 500 firms, and may not be
generalizable to the population of all firms. Future research can investi-
gate this issue using smaller firms to see if our findings hold. Third,
although we find an association between accounting financial expertise
and financial reporting timeliness, our data are not sufficient to assess
causality. The relative infrequency of appointment or removal of AFEs
to or from the board of directors restricts our ability to use time-series
data to provide causal evidence. We suggest future research examine
if firms replace a non-accounting financial expert with an AFE exhibit
improved financial reporting timeliness.
Finally, our study could be useful to future researchers interested in
furthering our findings. For example, researchers could use a larger
sample to investigate whether AC accounting financial expertise is asso-
ciated with revisions to preliminary announcements, similar to Bronson
et al. (2011), further to estimate AC effectiveness in financial reporting.
Additionally, because of the variance between CFO-sourced and
PA-sourced AFEs, future research could examine settings in which
CFO-sourced AFEs contribute more to AC effectivess (i.e. investment
efficiency, M&A activity). Finally, researchers could examine if the
duration of public accounting experience (e.g., years as an auditor)
influences AC member effectiveness.
Acknowledgments
The authors are grateful for comments received from Bruce Behn,
Scott Bronson, Michael Ettredge, Dana Hermanson, Chris Hogan, Carl
Hollingsworth, Tony Kang, Gopal Krishnan, Lisa Kutcher, Tamara
Lambert, Sandeep Nabar, Eric Rapley, Manuel Sanchez, Divesh Sharma,
Gnanakumar Visvanathan, participants at the 2011 AAA Annual
Meeting, participants at the 2012 Audit Midyear meeting, and work-
shop participants at Colorado State University.
Appendix A. Example of biographies explaining audit committee
accounting expertise
A.1. Director with public accounting expertise (PAAFE)
Mr. Cook is Chairman of the Accountability Advisory Panel to the
Comptroller General of the United States, a member of the Advisory
Council for the Public Company Accounting Oversight Board (PCAOB)
and President of the Institute of Outstanding Directors. He is also a
member of the Advisory Board of the Securities Regulation Institute,
Chairman Emeritus of the Board of Catalyst and a member of the
Advisory Board of the Graduate School of the University of Florida.
Mr. Cook has received the Columbia Business School Botwinick Prize
in Business Ethics, Yeshiva University's Distinguished Leadership
Award, Monmouth College's Distinguished Business Leader, Chief
Executive Officer Recognition Award from Women in Technology
International, Working Mother Magazine's Family Champion of the
Year Award, Director's Alert 2002 Outstanding Director in Corporate
America, and the John J. McCloy Award of the AICPA Public Oversight
Board for contributions to excellence in auditing. He was Chairman
and Chief Executive Officer of Deloitte & Touche from 1989 to 1999
and Chairman and Chief Executive Officer of Deloitte, Haskins & Sells
from 1986 to 1989. Mr. Cook won the Catalyst Award and United Way
Spirit of America Award to Deloitte & Touche under Mr. Cook's leader-
ship. He was named the 62nd member of the Accounting Hall of Fame
in 1999 and is a Distinguished Alumnus of University of Florida.
Please cite this article as: Abernathy, J.L., et al., The association between characteristics of audit committee accounting experts, audit committee
chairs..., Advances in Accounting, incorporating Advances in International Accounting (2014), http://dx.doi.org/10.1016/j.adiac.2014.09.001
A.2. Director with CFO expertise (CFOAFE)
From October 1998 until June 2003, Mr. Iyer was Chief Financial
Officer of Conexant Systems, Inc. He previously served as Senior Vice
President and Chief Financial Officer of VLSI Technology Inc., where he
was responsible for all worldwide financial functions, information
technology and strategic planning. During his career, Mr. Iyer has held
a variety of other key management positions, including Finance Director
and Group Controller for a $1 billion business at Advanced Micro
Devices. Mr. Iyer received his B.S. in Mechanical Engineering from the
Indian Institute of Technology, Madras and his M.S. in Industrial
Engineering from the University of California, Berkeley. He also received
an M.B.A. in Finance from the Wharton School.
A.3. Director with both accounting and CFO expertise (BOTHAFE)
Mr. Schneider, a CPA, has been Senior Vice President and Chief
Financial Officer for Dell, Inc. since March 2000. Prior to that, he was
Senior Vice President of Finance for Dell Computer Corporation from
September 1998 to March 2000. Prior to that, from September 1996 to
September 1998, Mr. Schneider was Vice President of Finance. From
September 1993 to September 1996, he was Senior Vice President for
MCI Communications Corporation in Washington, D.C. Mr. Schneider
was with the accounting firm of Price Waterhouse from 1973 to
September 1993 and was a Partner from October 1983 to September
1993. Mr. Schneider holds a bachelor's degree in Accounting from
Carroll College.
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