Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

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 qualityAudit committee effectivenessAudit 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

More Articles from JOURNAL OF BUSINESS AND AFRICAN ECONOMY

Monetary Policy Transmission Mechanism and Economic Growth in the West African Monetary Zone, 2000-2025

Author: i, Okolie, Romanus Onyeisi, ii, Emeter Patrick Okechukwu, iii, Aduba Paul Nnamdi, iv, Eneaniofu Daniel Mmaduakonam, v, Okwor Emmanuel Ejimnkonye

Inventory Management and Organisational Performance of Selected Manufacturing Firms in Southwest, Nigeria

Author: Akande, Folashade Adebisi, Ibojo, Bolanle O. PhD, Akinruwa, Temitope E. PhD

Monetary Policy and Performance of Deposit Money Banks in Nigeria

Author: Egbuho, Chika Anthonia, Njoku, Kevin Chinaka. Isukul, Araniyar. Chinedu.