Audit Committee Quality and Financial Reporting Quality: A Study of Selected Indian Companies

Kanukuntla Shankaraiah, Seyed Masoud Sajjadian Amiri

Abstract


This study examines audit committee quality and its relationship with financial reporting quality. The population of this study consists of the companies listed in Bombay Stock Exchange (BSE) between years 2002 and 2012. Using Godden sample size formula, 133 companies are selected randomly for the study. It is found that in most of the equity based listed companies at BSE under study have complied with the legal formalities, for instance, appointment of independent directors, number of meetings, size of the audit committee, legal qualifications and financial qualifications of the directors, as they were required for the listing at a stock exchange in India. Further, the analysis and tests state that board size, audit committee meetings and its size have relationship with the financial reporting practices, but the CEO tenure and hold, board independence, net income, proportion of independent directors on board, legal qualifications and financial qualifications of the directors and overlap of audit committee members on compensation committee, have no influence on the financial reporting practices. Thus, it may be inferred that the companies may improve the financial reporting quality, by managing the board size, audit committee meetings and size, as these characteristics have significant relationship with financial reporting quality.


Keywords


Audit Committee, Financial Reporting, Quality, Performance, Discretionary Accruals.

Full Text:

PDF

References


Tang, Q., Chen, H., & Lin, C. (2008). Financial reporting quality and investor protection: a global investigation, Working Paper. Retrieved from http://www.academia.edu/25552550/FINANCIAL_ACCOUNTING_QUALITY_AND_ITS_DEFINING_CHARACTERISTICS

Jonas, G.J & Blanchet, J. (2000). Assessing Quality of Financial Reporting. Accounting Horizons, 14 (3).

Watkins, A., W. Hillison & S. Morecroft. (2004). Audit quality: A synthesis of theory and empirical evidence. Journal of Accounting Literature, 23, 153–193.

Jonas, G. & Blanchet, J. (2000), “Assessing Quality of Financial Reporting”, Accounting Horizons, 14 (3). (Cited in Baxter, 2007).

Schipper, K. & Vincent, L. (2003). Earnings quality. Accounting Horizons, 17, 97-110 (Supplement).

Sarkar, J. and Sarkar, S. (2010, October). Auditor and audit committee independence in India. Indira Gandhi Institute of Development Research, Mumbai. Retrieved from www.igidr.ac.in/pdf/publication/WP-2010-020.pdf

Wild, J. (1996). The audit committee and earnings quality. Journal of Accounting, Auditing & Finance, 11, 247-276.

Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33 (3), 375-400.

Klein, A. (2002). Economic determinants of audit committee independence. Accounting Review, 77 (2), 435-452.

DeFond, M. L., R. N. Hann, & X. S. Hu. (2005). Does the market value financial expertise on audit committees of boards of directors? Journal of Accounting Research 43(2),153-193.

Securities and Exchange Commission (SEC). (1999). Audit committee disclosure. Release No. 34 42266. File No. S7-22-99. Government Printing Office, Washington, DC.

Klein, A. (2002). Economic determinants of audit committee independence. Accounting Review, 77 (2), 435-452.

Abbott, L. J., Parker, S. & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23 (1), 69-87.

Bedard, J., Chtourou, S. M. & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice & Theory, 23 (2), 13-35.

Persons, O. S. (2005). The relation between the new corporate governance rules and the likelihood of financial statement fraud. Review of Accounting & Finance, 4 (2), 125-148.

Archambeault, D.S., Dezoort, F.T. & Hermanson, D.R. (2008). Audit committee incentive compensation and accounting restatements. Contemporary Accounting Research, 25 (4), 965-92.

Krishnan, J. (2005). Audit committee financial expertise and internal control: An empirical analysis. The Accounting Review, 80, 649-675.

Beasley, M.S., J. Carcello, D. Hermanson, & T. Neal. (2009). The audit committee oversight process. Contemporary Accounting Research 26 (1), 65-122.

Blue Ribbon Committee (BRC) (1999). Report and recommendations of Blue Ribbon Committee on improving the effectiveness of corporate audit committees. New York: New York Stock Exchange and National Association of Securities Dealers.

Xie, B.; W. Davidson III., & P. DaDalt (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance 9, 295-316.

Carcello, J. V., C. W. Hollingsworth, A. Klein, & T. L. Neal (2010). The role of audit committee financial experts in the post-sox era: have smaller public companies benefited disproportionately? Working paper, The University of Tennessee.

Carcello, J.V., C. Hollingsworth, A. Klein, & T. Neal, (2008). Audit committee financial expertise, competing corporate governance mechanisms, and earnings management. Working Paper, University of Tennessee.

Beasley, M.S., J.V. Carcello, D.R. Hermanson & P. D. Lapides. (2000). Fraudulent financial reporting: consideration of industry traits and corporate governance mechanisms. Accounting Horizons, 14, 441-454.

DeFond, M. L., R. N. Hann, & X. S. Hu. (2005). Does the market value financial expertise on audit committees of boards of directors? Journal of Accounting Research 43 (2), 153-193.

DeZoort, F.T., & S. Salterio (2001). The Effects of corporate governance experience and financial and audit knowledge on audit committee members’ judgments. Auditing: A Journal of Practice & Theory, 20, 31-47.

Menon, K., and J. D. Williams. (1994). The use of audit committees for monitoring. Journal of Accounting and Public Policy, 13, 121-139.

Dechow, P., Sloan, R. & Sweeney, A. (1996). Causes and consequences of earnings manipulation: An analysis of firm's subject to enforcement actions by the SEC. Contemporary Accounting Research, 13 (1), 1-36.

McMullen, D. (1996). Audit committee performance: An investigation of the consequences associated with audit committees. Auditing: A Journal of Practice and Theory, 15 (1), 87-103.

Abbott, L., Park, Y. & Parker, S. (2000). The effects of audit committee activity and independence on corporate fraud. Managerial Finance, 26 (11), 55-67.

Song, J. and Windram, B. (2004). Benchmarking audit committee effectiveness in financial reporting. International Journal of Auditing, 8 (3), 195-205.

Godden, B. (2004, January), http://www.williamgodden.com/samplesizeformula.pdf

Nandini Chandar, Hsihui Chang, & Xiaochuan Zheng (2012). Does overlapping membership on audit and compensation committees improve a firm's financial reporting quality? Review of Accounting and Finance, 11 (2), 141 – 165.

Kothari, S.P., Andrew L. Leone, & Charles E. Wasley. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39 (1) 163–197.S




DOI: https://doi.org/10.24815/jdab.v4i1.6653

Refbacks

  • There are currently no refbacks.


Copyright (c) 2017 Jurnal Dinamika Akuntansi dan Bisnis

Published by:

Accounting Department incorperated with IAI KAPd Wilayah Aceh
Economics and Business Faculty
Syiah Kuala University
Kopelma Darussalam, Banda Aceh, Indonesia - 23111
ISSN: 2355-9462, E-ISSN: 2528-1143

 

Creative Commons License
Jurnal Dinamika Akuntansi dan Bisnis by Prodi Akuntansi Universitas Syiah Kuala is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at http://www.jurnal.unsyiah.ac.id/JDAB/index.