Audit committee and financial reporting quality in listed nonfinancial firms in Nigeria

Abstract

This paper evaluates the effect of the audit committee on financial reporting quality in Nigeria. The study utilized data from 41 non-financial firms listed in the Nigerian Stock Exchange (NSE) for the 2011 to 2019 period. The study employed the Generalized Method of Moments (GMM) technique which is robust to endogeneity and heteroskedasticity threat. The findings indicate that audit committee size, shareholders and financial experts’ inclusion in audit committee convey a significantly negative relationship with earnings management, thereby reducing discretionary accruals and increase financial reporting quality. The finding of this study is also robust in scope concerning the issue of unobserved heterogeneity which prior studies have failed to address. Thus, future corporate governance reforms should recognize and sustain these efforts. The study recommends that the board of directors should ensure appointment of sufficient audit committee members with adequate financial expertise in which shareholder should be included. This will enable them to perform their functions effectively through proper oversight function and create good atmosphere for the statutory audit. This can also lead to suppressing reporting irregularities and increase public confidence regarding the quality of financial report.