Author Description

The Sarbanes-Oxley Act significantly expanded the role of the audit committee as monitor of the firm?s financial reporting. This study examines the contribution of key audit committee characteristics; independence, financial expertise, firm provided support of the audit committee, and oversight to the effectiveness of audit committee monitoring. The study uses a proprietary database of survey responses by audit committee directors and firms? corporate secretaries, in a period just prior to and in an initial period post-compliance with the Sarbanes-Oxley Act. Results provide evidence that an independent audit committee requires firm-specific financial knowledge. A possible explanation is this type of competency is needed to offset the valuable contribution otherwise provided by inside directors. In some settings, firm provided support in the form of training and sufficiency of information also improves monitoring effectiveness. The findings should be useful to market participants and regulators as they evaluate the efficacy of the Sarbanes-Oxley legislation, and audit committee directors as they conduct evaluations of their own practices.