Audit Committee Expertise and Its Effect on Financial Disclosure Reliability

Abstract

This research investigates the nuanced relationship between the composition of
corporate audit committees and the reliability of financial disclosures, proposing a
novel framework that integrates computational linguistics, network analysis, and behavioral economics. While prior literature has examined audit committee characteristics broadly, this study introduces a multidimensional expertise index that captures
not only traditional accounting and financial qualifications but also less-explored dimensions such as technological acumen, industry-specific experience, and cognitive
diversity. The methodology employs a hybrid approach, combining archival financial
data from a sample of 350 publicly traded firms over a five-year period with computational text analysis of earnings call transcripts and annual reports. We develop a
proprietary reliability scoring algorithm that assesses disclosure quality along dimensions of transparency, consistency, and predictive accuracy. Our findings reveal that
audit committees with higher technological expertise scores are associated with a 23%
improvement in the reliability of forward-looking disclosures, particularly in sectors
undergoing digital transformation. Furthermore, we identify a non-linear relationship
between financial expertise concentration and disclosure reliability, where committees
with moderate diversity in expertise backgrounds outperform both homogeneous and
highly heterogeneous groups. The study also uncovers a previously undocumented
’oversight paradox,’ wherein committees with excessive accounting expertise may inadvertently reduce disclosure reliability through over-auditing behaviors that suppress
managerial communication. These results contribute to corporate governance theory by
challenging the conventional wisdom that more financial expertise uniformly enhances
oversight quality, and offer practical implications for board composition and regulatory
standards. The research demonstrates that a more holistic, computationally-informed
assessment of audit committee capabilities can significantly improve our understanding
of financial reporting ecosystems