Effects of Audit Committee Adoption Period and Member Tenure on Accounting Quality

[Purpose]This study examines how the audit committee adoption period affects accounting quality. In addition, the study investigates not only the effect of audit committee member tenure but also its marginal effect on accounting quality. [Methodology]We use data from 984 non－financial enterprises with audit committees in the Korean stock market (KOSPI) from the period of 2000 to 2012. Searching the annual reports from the DART (Data Analysis, Retrieval and Transfer System) of the Financial Supervisory Service, we collect data on the characteristics of audit committees. We analyze the data by using ordinary least squares regression and piecewise linear regression analysis. [Findings] The longer the adoption period of an audit committee is, the higher the accounting quality is. Moreover, the longer the tenure of an audit committee member is, the better the accounting quality is, but the marginal effect of audit committee member tenure on accounting quality decreases. [Policy Implications]The findings of this study can serve as a key evidence for regulatory authorities to use in designing appropriate member tenure to improve the effectiveness of an audit committee. The other practical implication of this study is that audit committee adoption period and member tenure, which have been identified as determinants affecting accounting quality, can be used as evidence for firms not only to design an effective audit committee, but also to decide the levels of audit efforts, such as audit hours and fees.