Article2020

The impact of audit committee financial expertise on de facto use of IFRS: does external auditor’s size matter?

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose De facto use of International Financial Reporting Standards (IFRS) is a particular form of voluntary compliance with International Accounting Standards (IAS). It is practiced when an enterprise uses a number (and not all) of international standards as a complement to overcome the unachieved nature of local generally accepted accounting principles. The purpose of this paper is to analyze, at first, whether the financial expertise of Tunisian audit committee’s members is associated with de facto use of IFRS. Second, it explores to what extent and in what direction this association evolves when the factor auditor’s size is introduced as a moderator variable. Design/methodology/approach Data spanning a seven-year period (2012–2018) was hand-collected for a sample of 497 firm-year observations. Further, regression analysis was used to test the study’s hypothesis. Findings Findings show that the proportion of financial experts who sit on the audit committee is positively associated with the de facto use of IFRS. Besides, the association between audit committee members’ financial expertise and the voluntary use of IFRS is more pronounced when the company is audited by at least one BIG 4 audit firm. Practical implications The paper’s findings have implications for regulatory bodies and standards setters who are concerned with the functioning of the audit committee, especially when it comes to enhancing the quality of the financial statements. The results also shed light on the role of financial experts on the audit committee and Big 4 auditors to enforce the de facto use of IFRS. Originality/value The findings of this study contain an important message for the drift toward national de jure convergence with IAS.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2004Audit Committee Characteristics and Restatements 2004The Effect of Audit Committee Expertise, Independence, and Activity on Aggressive Earnings Management 2008Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed Firms 2005Does the Market Value Financial Expertise on Audit Committees of Boards of Directors?2004Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia 2005Audit Committee Quality and Internal Control: An Empirical Analysis 2008Financial expertise of directors

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