A CONCEPTUAL REVIEW OF AUDIT COMMITTEE ATTRIBUTES AND FINANCIAL REPORTING QUALITY: THE MODERATING EFFECT OF BOARD INDEPENDENCE
DOI:
https://doi.org/10.67199/508xwv77Keywords:
Audit committee attributes, Board independence, financial reporting quality, Agency theoryAbstract
Audit committee acts as a key instrument of corporate governance mechanism designed to enhance financial reporting quality by strengthening the oversight and accountability function of the board of directors. Enhanced financial reporting improves the reliability, transparency and credibility of a firm’s financial report. This allows investors and other stakeholders to make better informed decisions, reduces information asymmetry and build market confidence. The audit committee and board independence reduce agency costs by providing objective oversight that curbs managerial opportunism and aligns management decision with shareholders’ interest. Through enhanced monitoring and transparency, these governance mechanisms promote accountability and protect shareholder value. Complementary governance hypothesis argued that one mechanism can enhance the effectiveness of another when both aim to reduce agency cost. As such board independence can enhance the effectiveness of audit toward reducing agency cost which will improve quality of financial reporting. This conceptual paper reviews prior literature and theoretical perspectives to conceptually extend the relationship between audit committee attributes (including: independence, financial expertise, size, meeting and shareholding) and financial reporting quality by incorporating board independence as moderating variable. The framework is grounded drawing in agency theory and resource dependence theory. The proposed conceptual framework, which explains the effect of audit committee attributes on financial reporting quality as moderated by board independence, is grounded in the complementary governance hypothesis.
Keywords: Audit committee attributes, Board independence, financial reporting quality, Agency theory.
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