Audit committee compensation influences auditor support
Audit committee members are more likely to support the company’s auditor over its staff and management when facing a disagreement if the compensation of members of the board’s audit committee includes long-term stock options, according to new research from the Villanova School of Business.
Villanova professor Jim Bierstaker found that members of the audit committee perceive the failure to record the auditor’s adjustment is less fair to current shareholders.
On the other side, audit committee members are less likely to support the auditor when they perceive they have more personal control over the outcome of the disagreement. When they believe they can influence the outcome, the audit committee will tend to go with management.
“I teach financial auditing, and my students are amazed that audit committee members can receive stock options,” said Bierstaker. “They’re amazed that that’s not an independence issue.”
Bierstaker cited similar findings where audit committee members or directors who received more stock options and short-term compensation tended to have more earnings restatements.
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LAST UPDATED 12/10/2009