Does adding accounting expertise matter? A study of audit committees in mergers and acquisitions

• Main Author: Adams, Tom
• Language: EN
• Published: Temple University 2016
• Subjects: Accounting
• Online Access: http://pqdtopen.proquest.com/#viewpdf?dispub=10144436

<p> This study examines changes in a company&rsquo;s audit committee accounting expertise following an M&amp;A transaction. M&amp;A accounting (ASC 805) is complex, nuanced, and error-prone. An M&amp;A also involves significant operational and financial changes for the acquirer, including changes in internal control over financial reporting. Thus, an acquirer&rsquo;s demand for accounting expertise is likely heightened at the time of an M&amp;A. This study provides the first insights (to my knowledge) regarding the role of accounting experts in the dynamic M&amp;A setting. In a sample of relatively large (on average) M&amp;As, I document that there are financial reporting benefits (reduced likelihood of restatements, higher likelihood of timely goodwill impairments, and smaller allocations of purchase price to in-process research and development) associated with changes/increases in audit committee accounting expertise. Further, my results suggest that changes/increases in audit committee accounting expertise matter more than changes/increases in other types of audit committee expertise (supervisory, industry, and M&amp;A contextual). I document that changes/increases in audit committee accounting expertise are positively associated with accounting and business complexities. Collectively, the evidence suggests that accounting expertise is valuable in the M&amp;A setting. This provides support for the SEC&rsquo;s definition (in its 2002 proposal, although not in its final 2003 rule) of audit committee financial experts as those with accounting-specific backgrounds (SEC 2002, 2003).</p>