The Effect Of The Audit Committee’ Industry Expertise On Financial Reporting Quality And Audit Fees

Due to the separation of operation and ownership right in modern enterprise, the problem of principal-agent happened, investors and the actual business managers are often not the same person, therefore the accounting information becomes one of the important ways to know the social public for the investors.But since the 21 st century, a series of financial fraud and audit failure case a heavy blow to people’s confidence in the quality of financial reporting.Now need an independent third party to supervise and check the company’s operations,ensure the external auditor independence, and effective communication with external auditors effectively, it will eventually reduce the occurrence of financial fraud and financial restatements events. Just because the important role the audit committee system takes, it rise wide attention by all of us.As for audit committee system, previous studies have focused on the item that why company willing to establish audit committee, and what kind of characteristics should the committee be have? As to the related research on audit committee characteristics, we can know that they mainly focus on the composition of the members of the audit committee, such as audit committee members’ financial expertise, the authority of the audit committee, audit committee members’ diligent degree, the number of audit committee meetings, etc. Base on the above theory, this article think that if the audit committee members have industry expertise can also helpful to improve the efficiency of the audit committee. This paper argues that the industry expertise of audit committee plays a same crucial role in enhancing the efficiency of the audit committee. First of all, it is well known that accounting is a career with special attributes of the industry; secondly when issued some relevant accounting standards,it also requires some specific industry has the special accounting treatment;Moreover, accounting is a subjective factors influence on career, in the accounting standards of related specifications, some for standards, inevitably will apply to the financial personnel professional judgment, so accounting estimates is closely related to a particular industry.Finally for the supervision of the external auditors is also related to the specific industry’operating conditions.Based on some previous research,this paper use financial restatement approximately instead of the quality of financial reporting, and use the experience data of the a-share listed companies from 2011 to 2013, using logit and multivariate regression model, this paper testthe effect of udit committee industry expertise on the quality of financial reporting and audit fees. Through the study of this article, we found that: audit committee industry expertise is positive associated with financial reporting quality, so same as committee financial expertise.And compared to the audit committee only with expertise in financial,those audit committee which have financial and industry expertise can improve the quality of financial reporting; so as to the audit fees. In this paper, the research results show that audit committee with industry expertise is more efficient in supervising the process of financial reporting, so it can directly help to reduce the company’s financial report restatement rate; the audit committee which have industry expertise can communicate with the external auditors efficiently, and also plays a very important role in ensuring the independence of the external auditor,which indirectly impact on the quality of financial reporting and the audit fees. The last part of the paper is the conclusion, and we also put forward some feasibility suggestions basing on the conclusion.Such as increasing the proportion of audit committees who have industry expertise.