The effects of corporate governance experience and financial-reporting andaudit knowledge on audit committee members' judgments

Interest in audit committees as part of overall corporate governance has in creased dramatically in recent years, with a specific emphasis on member in dependence, experience, and knowledge. This paper reports the results of a study investigating whether audit committee members' corporate governance e xperience and financial-reporting and audit knowledge affect their judgment s in auditor-corporate management conflict situations. A sample of 68 audit committee members completed an accounting policy dispute case and several knowledge and ability tests. The results indicate that, as expected, greate r independent director experience and greater audit knowledge was associate d with higher audit committee member support for an auditor who advocated a "substance over form" approach in the dispute with client management. Conv ersely, concurrent experience as a board director and a senior member of ma nagement was associated with increased support for management. Collectively , these findings have a number of implications for practice and research. T he results provide justification for calls that audit committees be compose d completely of independent directors. The results also support auditor con cerns that varying knowledge levels lead to systematic differences in audit committee member judgments in disputes between auditors and management.