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Introduction
Audit committees play important role in the quality and credibility of financial reporting, since they act as part of the governance mechanism to improve operations and economic profit of firms. Audit committees are important mechanism in the corporate governance ([96] Zhang et al. , 2007; [7] Anderson et al. , 2004), and have an important role ensuring the financial reporting quality ([21] Carcello and Neal, 2000). The audit committee literature mostly focus on the audit committee effectiveness from various aspects; as a non executive director or board independence ([23] Chen et al. , 2005; [47] Iskandar and Abdullah, 2004; [111] Windram and Song, 2004), on responsibilities or functions ([52] Joshi and Wakil, 2004; [40] Gendron et al. , 2004), and being a financial expert or having accounting and finance background ([38] Engel et al. , 2010; [13] Baxter and Cotter, 2009, [65] Mangena and Tauringana, 2008; [27] Coates et al. , 2007; [75] Qin, 2006; [35] Defond et al. , 2005). Audit committees with financial expertise are important as they show support for auditors ([36] DeZoort et al. , 2003; [37] DeZoort and Salterio, 2001), the credibility of the financial statement ([19] Burrowes and Hendriks, 2005), and the high quality of reported earnings ([75] Qin, 2006). Subsequently, market appreciates audit committee financial expertise as studies have shown an excess return of 4.6 percent in [27] Coates et al. (2007) and a positive market reaction to the announcement of directors with accounting financial expertise ([35] Defond et al. , 2005).
Prior studies show two categories of experts - the accounting experts, and non-accounting experts. Accounting experts are those with professional accounting certification or affiliation. While, the non-accounting experts are directors without any certification but have served in senior managerial positions such as CFO or CEO. The need to have accounting experts or financial experts on the audit committee is clearly stated in [88] Sarbanes Oxley Act, 2002, [17] BRC (Blue Ribbon Committee), 1999 and Code of Corporate Governance.
However, the measurement of expertise may need to be further analysed, as SOA and SEC's description may not be suitable for emerging economies, such as Malaysia. Even though, it shows that Malaysian listing requirements' guideline is almost similar with other countries such as Australia, New Zealand, Hong...