International Journal of Economics and Financial Issues Impact of Audit Committee on the Association Between Financial Reporting Quality and Shareholder Value (original) (raw)
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The Impact of Audit Quality, Audit Committee and Financial Reporting Quality: Evidence from Malaysia
International Journal of Economics and Financial Issues, 2020
In recent decades, there has been a noticeable increase in the practice of earnings management (EM) as a proxy for financial reporting, especially real activities, with effect on the quality of financial statements. The role of the audit committee in mitigating EM remains ambiguous because of inconclusive findings. Therefore, this study examines the moderating effect of audit quality and audit committee on financial reporting quality, also known as real earnings management in Malaysian companies. The results show that corporate governance mechanism such as financial accounting expert, meeting and indicate significant results with real EM while, audit committee independence and size, shows an insignificant result on real EM. In addition, the results show that audit quality of the audit committee leads to less aggressive EM practice in real activities. The findings also show that audit quality and audit committee has a significant role in restricting the real EM. Audit quality is found to significantly moderate the relationship between audit committee with financial reporting quality proxy. Overall, this study provides a reference point for the relevant parties such as regulatory bodies, policymakers and standard setters towards improving the quality of earnings and corporate governance practices in ensuring credible accounting information.
The International Journal of Humanities & Social Studies, 2020
These financial statements should not be intentionally prepared to mislead the user, but must provide reliable, timely, and relevant information to assist users when it comes to making important decisions (Kibiya, Che-Ahmad &Amran, 2016). This implies that information should be evidently recent, with additional facts supplied in the supporting foot note as a desire to assist in clarification. The information should not have any material error and bias, and should not be misleading (Kingsley, Gina & Vivian, 2014). Hence, the information needs to faithfully present the business activity and other events, reproduce basic substance of events and cautiously represent estimates and uncertainties using proper disclosure (Ofoegbu & Okoye, 2011). The steadfastness of this information depends on the relevance and reliability of accounting earning. Malaysia has not been insulated from firms' mischief and misconduct. Numerous eminent financial improprieties have taken place in Malaysia associated with large firms such as Transmile Group Bhd., Malaysian Airlines Systems, LFE corporation Berhad, PromtoBhd and MEMS Technology Bhd (Hasnan, Rahman & Mahenthiran, 2013). Sadique, Roudaki, Clark and Alias (2010) referred to a survey by PricewaterhouseCoopers that 48% of the companies in Malaysia were victims of economic crime, and with regard to fraud, 62% of listed companies were affected. The series of corporate scandals has caused a lot of damage to investors' confidence in the capital market of Malaysia (Kallamu & Saat, 2015). Due to the financial fraud cases highlighted above, Hasnan et al. (2013) argued that usually fraudulent financial reporting begins as earnings management (EM) and exhausts the most aggressive Generally Accepted Accounting Principles (GAAP) and grows over time to become norm. However, earnings management (EM) might be beneficial to reach stockholders' incentives and improves the information value of earnings (Rezaei & Roshani, 2012). There are two
Evaluation of the Effects of Corporate Governance on Financial Reporting Quality
Journal of Modern Accounting and Auditing, 2019
Corporate governance is designed to stimulate the investment environment and to create a stable financial situation in the capital markets by increasing the level of reliability, transparency, and accountability at the firm level. This study aims to examine whether corporate governance leads to higher quality financial reporting. This research has been performed using companies listed on Borsa İstanbul (BIST). For this purpose, two samples from the publicly held companies on BIST, which are included in the Corporate Governance Index and which are not included in this index, have been formed. Thus, we examined whether there is any difference between the financial reporting quality of the companies listed in Borsa İstanbul Corporate Governance Index and the financial reporting quality of the enterprises that are not included in this index. Since the quality of financial reporting is a multi-dimensional concept, it can be evaluated by different measurement methods focusing on different dimensions in the literature. One of these approaches used to measure the quality of financial reporting is the quality of earnings. The evaluation of the financial reporting quality of the enterprises included in the BIST Corporate Governance Index and the enterprises not included in the index were evaluated through different methods to compare two different samples in the context of the earnings quality approach. Panel data analysis was used to evaluate the financial reporting quality of the two samples by means of earnings quality methods. The data related to the models used in the assessment of financial reporting quality were obtained from the Public Disclosure Platform (KAP) and Equity RT database. The research covers 72 enterprises, 36 of which are in the Corporate Governance Index and 36 of which are not in the Corporate Governance Index.
2017
The quality of a financial reporting system is highly dependent upon the mechanism of corporate governance, such as effectiveness of the audit committee, external audit, financial expertise and board structure. This study examines the relationship between audit committee characteristics and external auditors’ characteristics (independent variables) and financial reporting quality (dependent variable). The study used a sample of firms from Bursa Malaysia, explicitly the top 100 performing firms according to the Bursa Malaysia stock exchange. The analysis of annual reports proves that audit committee (independence, expertise, and diligence) has the prediction capability to financial reporting quality. However, results indicate that industry leadership has significant impact on financial reporting quality, but on the other hand, large audit firms do not have any significant effect on financial reporting quality. This study adds to the knowledge of audit committee practices and procedur...
The Effect Of Audit Quality And Earnings Management On Firm Performance
Proceedings of the 1st International Conference on Applied Economics and Social Science (ICAESS 2019), 2019
This study aims to examine the effects of audit quality on earnings management, audit quality and earnings management impact on the performance of nonfinancial companies listed in Indonesia Stock Exchange (IDX) period 2010-2015. Audit quality is proxy by auditor size, audit tenure and audit fees. The earnings management of discretionary accruals used modified Jones models by Dechow (1995), firm performance is proxy by Tobins'Q. The analysis technique used is the data panel regression analysis with EVIEWS software. The results of the study found are: firstly, that audit quality has no effect on firm performance, quality audit but has no effect on earnings management and earnings management has no effect on firm performance.
FUDMA International Journal of Social Sciences (FUDIJOSS), 2019
There is controversy in literature of earnings management/quality, on the appropriate measure of earning management/quality. This paper applies the Yoon, Kim and Woodruff (2012) model to measure earnings quality used as proxy for financial reporting quality because of its merits over the commonly used modified Jones model. The 5 listed Agriculture firms in the Nigerian Stock Exchange for the period 2008- 2016 formed the population of the study, out of which 4 firms were sampled for the study. Data on financial reporting quality, the dependent variable of the study, and the explanatory variables were extracted from annual financial reports of the firms. Analysis of data was done using regression models and selected firm characteristics were regressed against financial reporting quality. The results reveal that financial reporting quality is positively and significantly influenced by solvency and gearing. Furthermore, both board size and board meetings exerted positive but insignificant effect on financial reporting quality. The study recommends that the boards of directors of listed agro allied firms in Nigeria must specifically highlight and effectively discuss issues around earnings management during board meetings. Shareholders are called to note the contribution of gearing and solvency to reporting reliable accounting numbers, and to enforce through the board, the maintenance of optimum and most favorable levels of each, in order to induce quality financial reporting.
Asian Management and Business Review
This study aims to examine the effect of audit quality, managerial reports and audit committees on financial reports quality in companies listed on the Jakarta Islamic Index (JII) in 2018-2020. This type of research is quantitative with multiple linear regression. The data used is secondary data in the form of consolidated reports. The samples of this study consisted of 36 companies listed on the Jakarta Islamic Index (JII) in 2018-2020. The results of this study indicate that audit quality has a significant positive effect on the financial reporting quality, managerial reports have a significant negative effect on financial reporting quality and audit committee has a positive but not significant effect on financial reporting quality quality.
The role of the audit committee in accounting and finance expertise on earnings quality
Corporate Governance and Organizational Behavior Review
This study aims at examining the effect of the audit committee with accounting and finance expertise on the earnings quality of manufacturing companies in Indonesia. The earnings quality measurement uses the absolute value of discretionary accrual. This study uses three measurements of discretionary accruals, the Jones model (Jones, 1991), the modified Jones (Dechow, Sloan, & Sweeney, 1995), and the Kasznik models (Kasznik, 1999). Further, the current study refers to Badolato, Donelson, and Ege (2014) to identify the audit committee expertise. The data were collected from the Indonesia Stock Exchange (IDX) between 2015 and 2017 with 331 observations. The results showed that audit committees’ characteristics with both accounting and finance expertise have a negative effect on discretionary accrual. Thus, audit committees’ members with both accounting and finance expertise have reduced the level of discretionary accruals. The result is consistent using three measurements of discretion...
Research Journal of Finance and Accounting, 2015
In developed economies, the audit process is very important measure of capital and political stability. This is despite the fact that in developing countries likes Iran. The audited financial statements of the most important tools for ensuring the transparency of financial information, which is to increase the predictive power of accounting information, such as financial ratios earnings per share is.Therefore, the quality of accounting information quality increases and future returns of the grounding of the information obtained will be closer to reality. The measures related to earnings management may lead to the disclosure of financial information to be false, because it is not provided in accordance with the actual conditions. Audit process as a moderator variable reduction measures related to earnings management. This paper examines the relationship between audit quality and earnings management among firms listed in Tehran Stock Exchange paid.And towards that goal, all of the com...
InFestasi
Implementation of Good Corporate Governance (GCG) which is believed to minimize the occurrence of fraud to achieve the integrity of financial report, GCG is proxied by institutional ownership, independent commissioners, and audit committees. Public Accounting Firm (KAP) as a variable which is an external auditor as an intermediary if there is a difference of opinion with the company's internal parties. The purpose of this study is to find out the effect of Earnings Management, Institutional Ownership, Independent Commissioners, Audit Committees, Size of Public Accounting Firms on the Integrity of Financial Report in mining companies. The researcher uses mining companies in Indonesia for the 2015-2019 period as the population with 22 companies as the research samples. Panel data analysis Eviews 9.0 software is used as a research method. The results of this study prove that the variables have a significant effect are the audit committee, meanwhile earnings management, institutiona...