Auditor selection and audit committee characteristics

The role of the audit committee in corporate governance is the subject of i ncreasing public and regulatory interest. We focus on one frequently noted function of the audit committee: auditor selection. We argue that independe nt and active audit committee members demand a high level of audit quality because of concerns about monetary or reputational losses that may result f rom lawsuits or SEC sanction. Auditors who specialize in the client's indus try are expected to provide a higher level of audit quality than do nonspec ialists. Thus, we predict that firms with audit committees that are both in dependent and active are more likely to employ an industry-specialist audit or. We find that firms with audit committees that do not include employees and that meet at least twice per year are more likely to use specialists. This study contributes to our understanding of audit committee functions and pro vides evidence that industry specialization is an important element of audi tor selection.