An Empirical Analysis of the Effects of Accounting Expertise in Audit Committees on Non-GAAP Earnings Exclusions

45 Pages Posted: 2 Sep 2010 Last revised: 11 Sep 2013

See all articles by Ananth Seetharaman

Ananth Seetharaman

Saint Louis University - Department of Accounting

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Sanjian Bill Zhang

California State University Long Beach

Date Written: July 31, 2013

Abstract

U.S. stock exchanges and lawmakers rely on audit committees to help safeguard the accuracy and reliability of corporate GAAP and non-GAAP financial information. However, there are gaps in our knowledge of how audit committees perform, especially with respect to companies’ non-GAAP financial information. Unlike companies’ GAAP-based financial measures, non-GAAP numbers are voluntary, not well-defined, and unaudited. Non-GAAP measures thus provide a particularly rich setting to examine the efficacy of audit committee performance. In this study we examine the association between audit committee appointments of accounting experts (relative to appointments of nonaccounting experts) and the company’s non-GAAP earnings numbers. We find a larger decline in non-GAAP earnings exclusions following the appointment of accounting (rather than nonaccounting) experts to audit committees. We also find that accounting experts are associated with higher-quality post-appointment non-GAAP earnings exclusions.

Keywords: Non-GAAP Earnings, Accounting Expertise, Audit Committee

JEL Classification: M4, G30

Suggested Citation

Seetharaman, Ananth and Wang, Xu (Frank) and Zhang, Sanjian, An Empirical Analysis of the Effects of Accounting Expertise in Audit Committees on Non-GAAP Earnings Exclusions (July 31, 2013). Accounting Horizons, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1669886 or http://dx.doi.org/10.2139/ssrn.1669886

Ananth Seetharaman

Saint Louis University - Department of Accounting ( email )

3674 Lindell Blvd.
St. Louis, MO 63108
United States
314-977-2473 (Phone)
314-977-1473 (Fax)

Xu (Frank) Wang (Contact Author)

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Sanjian Zhang

California State University Long Beach ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States

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