Audit committee characterization: Its role in enhancing financial statement quality
Keywords:
Audit Committee, Corporate Governance, Earnings ManagementAbstract
The study examined the relationship between audit committee characteristics and discretionary accruals as a measure of financial statement quality in industrial goods companies in Nigeria. Using an ex post facto research design, secondary data were collected from the financial reports and corporate governance disclosures of nine selected firms from 2019 to 2023, resulting in 45 firm-year observations. The study employed the modified Jones model to estimate discretionary accruals and applied panel least squares regression analysis to assess the relationship between audit committee size, meeting frequency, and independence with earnings management. The findings revealed that audit committee size had no significant relationship with discretionary accruals (β = 2.24, p = 0.9471), indicating that an increase in the number of committee members did not influence earnings management. However, audit committee meeting frequency (β = 8.86, p = 0.0475) and independence (β = 14.46, p = 0.0384) showed significant positive relationships with discretionary accruals, suggesting that frequent meetings and greater independence were associated with increased earnings management rather than improved financial oversight. The study concluded that while audit committees are critical governance mechanisms, their effectiveness in curbing earnings management remains questionable. These results suggest that regulatory bodies and corporate boards should focus on enhancing the effectiveness of audit committees by ensuring that independent members are truly objective and that committee meetings are more impactful.
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