Journal of Business and African Economy (JBAE )

E-ISSN 2545-5281
P-ISSN 2695-2238
VOL. 10 NO. 4 2024
DOI: 10.56201/jbae.v10.no4.2024.pg24.56


Audit Committee Effectiveness and Financial Reporting Quality of Listed Non-Financial Firms in Sub-Saharan Africa: The Moderating Role of Board Independence

Essien, Esitime Okon, Dr. Eno Gregory Ukpong, Prof. Nkanikpo Ibok


Abstract


This study examined the effect of audit committee effectiveness on financial reporting quality within the context of listed non-financial firms in Sub-Saharan Africa. Drawing samples from 235 listed non-financial firms in Nigeria, South Africa, and Kenya spanning the period from 2013 to 2022, the study employed Generalized Method of Moments (GMM) step and Stepwise Regression Techniques to analyze the data. The primary objective of the study was to investigate the effect of audit committee effectiveness, including size, diligence, and financial expertise, on financial report quality, as measured by Jones Discretionary Accrual. Additionally, the study extends this objective by examining the moderating role of board independence on the relationship between audit committee attributes and financial reporting quality. The findings revealed that audit committee diligence [coef. = 0.041 (0.002)] has a positive and significant effect on financial reporting quality, suggesting that an increase in audit committee diligence will improve financial reporting quality. However, audit committee size [coef. = 0.011 (0.236)] and financial expertise[coef. = 0.003 (0.990)] exhibited insignificant effects on financial reporting quality. Moreover, the study identified board independence [coef. = 0.022 (0.001)] has a significant moderator, enhancing the impact of audit committee diligence on financial report quality. Based on these findings, the study made the following recommendations to enhance audit committee effectiveness and financial reporting quality in Sub-Saharan Africa. These include promoting active audit committee oversight through regular meetings, fostering collaboration between audit committees and boards, and ensuring a majority of independent directors to strengthen audit committee effectiveness. Additionally, the study underscored the importance of continuous monitoring and evaluation of audit committee effectiveness to address em


keywords:

Financial reporting quality, Audit committee effectiveness, Audit committee


References:


Abbott, L. J., Park, Y., & Parker, S. (2000). The effects of audit committee activity and
independence on corporate fraud. Managerial Finance, 26(11), 55–67.
https://doi.org/10.1108/03074350010766990/FULL/HTML

Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and
restatements. Auditing: A Journal of Practice & Theory, 23(1), 69–87.
https://doi.org/10.2308/AUD.2004.23.1.69.

Agyei-Mensah, B. K (2019). Impact of audit committee attributes on financial reporting quality
and timeliness: An empirical study. Afro-Asian journal of finance and accounting 12
(1), 82-104.
Ahmed, A. S., & Duellman, S. (2007). Accounting conservatism and board of director
characteristics: An empirical analysis. Journal of Accounting and Economics, 43(2–3),
411–437. https://doi.org/10.1016/J.JACCECO.2007.01.005

Ahmed, M. M. (2018). The impact of audit committee characteristics on firm performance:
Evidence from Jordan. Research Article, 22(5), 1-7.

Akpan, E. O. (2015). Corporate board meetings and company performance: empirical evidence
from Nigerian quoted companies. Global journal of commerce and management
perspective, 4(1), 75-82.

Aktas R. & Kargin, M. (2011). Timeliness of reporting and the quality of financial information,
international research. Journal of finance and economic 63:71-77.

Alawaqleh, Q., & Ali Almasria, N. (2021). The impact of audit committee performance and
composition on financial reporting quality in Jordan. International Journal of Financial
Research, 12(3), 55–69. https://doi.org/10.5430/ijfr.v12n3p55.

Alchian, A. A. & Demsetz, H. (1972). Production, information costs and economic
organization. American economic review 62(1):772-795.

Baccouche, S., Hadriche, M., & Omri, A. (2013). The impact of audit committee multiple-
directorships On earnings management: Evidence from france. Journal of Applied
Business Research (JABR), 29(5), 1333–1342.
https://doi.org/10.19030/JABR.V29I5.8017

Bala, H. (2014). Audit committee characteristics and earnings management of listed food and
beverages firms in Nigeria. (Published Thesis). Ahmadu Bello Univeristy, Zaria.

Baxter, P. & Cotter, J. (2009). Audit committees and earnings quality. Accounting and finance,
49(1), 267-290

Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2009). The audit committee
oversight process. Contemporary Accounting Research, 26(1), 65–122.
https://doi.org/10.1506/CAR.26.1.3

Bédard, 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.

Beekes, W., Pope, P., & Young, S. (2004). The link between earnings timeliness, earnings
conservatism and board composition: Evidence from the UK. Corporate Governance:
An International Review, 12(1), 47–59. https://doi.org/10.1111/J.1467-8683.2004.00342.

Carcello, J. V. & Neal, T. L. (2000). Audit committee composition and auditor reporting. The
Accounting Review, 75(4): 453-467.

Chen, K., & Liu, J.-L. (2010). Earnings management, ceo domination, and growth
opportunities: Evidence from Taiwan. International Journal of public information
systems, 6(1).

Chiang, H. Li-Jen, H. & Shiao, C. F. (2015). Financial reports quality and corporate social
responsibility. Asian Economic and Financial Review, 5(3), 453.

Choi, J.H, Jeon, K.A, & Park, M.L. (2004). The role of audit committee in decreasing earnings
management Korean evidence. International Journal of accounting Auditing and
performance evaluation. 1(1) 37-90.

Dabor, A. O., & Dabor, E. L. (2013). Audit committee characteristics, board characteristic and
financial reporting quality in Nigeria. International journal of commerce and
management, 3(1), 1292-1905.

Dabor, E. & Adeyemi, S. (2009) Corporate governance and the credibility of financial
statements in Nigeria. Journal of business system governance and ethics 4 (1), 13-24.

Daoud, K. A., Ismail, K. N., & Lode, N. A. (2014). The timeliness of financial reporting among
Jordanian companies: Do company and board characteristics, and audit opinion matter?
Asian Social Science;10(13),191- 201.doi:10.5539/ass.v10n13p191.

Duru, A. N., Okpe, I. I. & Agodosi, O. B. (2019). Relationship between audit committee
Characteristics and financial reporting quality of quoted fast moving consumer goods
companies in Nigeria. Inosr humanities and social sciences 5(1): 102-119.

Easley, D., & M. O’Hara. (2004). Information and the cost of capital. Journal of Finance59
(4): 1553-1583.

Ebere C.C. & Ibanichuka, E.A.L (2016). Audit committee and financial performance of quoted
insurance companies in Nigeria. International journal of advanced academic research
social and management sciences, 7(2), 81-90.

Ebirien, G. I., Chukwu, G. J., & Ohaka, J. (2018). Audit committee characteristics and
corporate governance disclosure of Nigerian Deposit Money Banks. Asian journal of
economics, business and accounting, 9(3), 1-14.

Ehigie, A. H.& Isenmilia, P.A (2022). Audit committee financial expertise and financial
reporting timeliness. Mediterranean Journal of Social Sciences, 13 (2), 32-41.

Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management
Review, 14(1), 57–74. https://doi.org/10.5465/AMR.1989.4279003.

García, L. García, O., B. & Penalva, F. (2009). Accounting conservatism and corporate
governance. Review
of Accounting Studies, 14(1), 161–201.
https://doi.org/10.1007/S11142-007-9060-1/TABLES/10

Gendron, Y. & Bédard, J. (2006). On the constitution of audit committee effectiveness.
Accounting, Organizations and Society, 31 (3), 211-239.

Golmohammadi Shuraki, M., Pourheidari, O., & Azizkhani, M. (2021). Accounting
comparability, financial reporting quality and audit opinions: evidence from Iran. Asian
Review of Accounting,
29(1), 42–60. https://doi.org/10.1108/ARA-06-2020-0087/FULL/HTML. tional Journal of Public Information Systems. 2(1), 71-82.

Huang, P. & Zhang, Y. (2012). Does enhanced disclosure really reduce agency costs? Evidence
from the diversion of corporate resources. The Accounting Review87 (1): 199-229.

Hundal, S. (2013). Independence, expertise and experience of audit committees: Some Aspects
of Indian Corporate Sector. American international journal of social science, 2(5), 58–
Huse, M. & Solberg, A.G. (2006). Genderrelated boardroom dynamics: How Scandinavian
women make and can make contributions on corporate boards. Women in agreement
reviews, 21(2), 113-130.

IASB (2006). Preliminary views on an improved conceptual framework for financial reporting,
87

IASB (2008). Expose draft on an improved conceptual framework for financial reporting, 91-
92

Klein, A. (2002). Audit committee, board of director characteristics, and earnings management.
Journal of accounting & economics, 33: 375-400.

Krishnan, J. (2001). Corporate governance and internal control; An empirical analysis.
American Accounting Association Annual Meeting. Atlanta, Georgia.

Kusnadi, Y., Leong, K.S., Suwang, T., & Wang, J. (2015). Audit committees and financial
reporting quality in Singapore. School of Accountancy Research Paper Series
3(2).pages

Lennard, A. (2007). Stewardship and the objectives of financial statements: a comment on
IASB's preliminary views on an improved conceptual framework for financial
reporting: the objective of financial reporting and qualitative characteristics of
decision-useful financial reporting information. Accounting in Europe, 4(1), 51-66.

Majiyebo, O. J., Okpanachi, J., Nyor, T., Yahaya, O. A., & Mohammed, A. (2018). Audit
committee independence, size and financial reporting quality of listed deposit money
banks in Nigeria. Internationa


DOWNLOAD PDF

Back