Evidence on the association between female directors on audit committees and audit quality is weak. Further, researchers’ failure to identify the types of female and male financial experts may have (a) resulted in the mixed evidence on the relationship between female financial experts on audit committees and financial reporting monitoring, and (b) led them to question male financial experts on audit committees. Thus, we examine whether female directors and the types of female and male financial experts on audit committees are associated with audit quality. Using FTSE 350 firms from 2009 to 2017 and ordinary least-squares regression, this study finds that female directors and female accounting experts on audit committees are positively associated with audit quality. Our results may explain the conflicting evidence on the association between female financial experts and financial reporting oversight and also suggest that firms’ audit quality may increase with female accounting experts on audit committees.

Introduction

This research examines the impact of a female audit committee member on audit quality. Further, we investigate whether the financial expertise (both accounting and non-accounting) of female audit committee members improves audit quality. Empirical research provides evidence that the existence of female directors on the audit committee enhances earnings quality (Srinidhi, Gul, & Tsui, 2011; Thiruvadi & Huang, 2011). The role of an audit committee is to oversee the financial reports (Aldamen, Hollindale, & Ziegelmayer, 2018) and thereby mitigate agency costs (Dhaliwal, Naiker, & Navissi, 2010), suggesting the importance of audit committees. Further, Bédard and Gendron (2010) contend that audit quality is one of the mechanisms to determine audit committee effectiveness. Female directors on audit committees are expected to oversee management effectively and thereby improve audit quality because female directors are more likely to show lower tolerance towards opportunistic behaviour (Srinidhi et al., 2011; Zalata, Tauringana, & Tingbani, 2018). Following corporate collapses such as ENRON, policy-makers have attempted to overhaul corporate governance regulation by incorporating gender diversity in order to address the groupthink stemming from male-only boards (Wahid, 2019). Regulators in different countries have implemented mandatory female quotas. For example, Norway, Spain and France have a 40% female quota policy where noncompliance leads to sanctions such as fines, adverse impact on the award of state contracts, and the non-payment of directors’ fees (Terjesen & Sealy, 2016; Terjesen, Aguilera, & Lorenz, 2015).