Meet the Experts

The focus of this paper is the audit committee "financial expert" disclosure requirement under Section 407 of the Sarbanes-Oxley Act of 2002. It is based upon an examination of audit committee financial experts identified by firms in their proxy statements during the first year of implementation of the requirement (after Mar 2003 when the Act became effective). This paper examines a sample of large (S&P 500) and small firms. The findings suggest that many of the initial concerns have proved unfounded. Even though this regulation is a disclosure requirement and companies are not required to have an audit committee expert, almost all firms in the sample designate an audit committee financial expert. Concerns about the burden to small firms appear to be unfounded at the inception date. However, the level of work for these financial experts will undoubtedly result in higher compensation, and small firms may have difficulties finding and retaining financial experts without a substantial financial cost.