Date of Award

9-2010

Thesis Type

PhD

Document Type

Thesis

Divisions

Faculty of Business and Economics (formally known as Faculty of Business and Accountancy)

Institution

Universiti Malaya

Abstract

The objective of the study is to investigate the relationship between audit committee expertise and financial reporting quality. Since Sarbanes Oxley Act 2002, there has been growing interest in the research concerning audit committee expertise. Audit committee plays an important role on the quality and credibility of financial reporting, since they effectively function as a governance mechanism.  Whilst, many studies have examined the attributes of audit committee financial expertise with regard to financial reporting quality, and their composition of expertise on the audit committee board, few have focused on the financial expertise aspect specifically and none have considered extending the meaning of expert other than the notion of a professionally qualified accountant. This study examines the audit committee expertise attribute in detail and investigates the relationship between these expertise attributes and financial reporting quality, and thus, complements extant literature on audit committee expertise. Additionally, the study shows that, the measurement of financial literacy or expertise requires more detailed analysis then previously done as such measures may not be appropriate for Malaysia, an emerging economy. The study highlights that this lack of attention to the appropriate measure of audit committee member expertise may explain why some Malaysian studies failed to find any association of financial expertise with financial reporting quality, suggesting that a more reliable measure is needed.  Two research questions are developed to address the research gap on audit committee expertise. First, to address the issue of a lack of clear definition and appropriate measure of audit committee expertise that is suitable for an emerging economy such as the Malaysian given its corporate governance scenario and inadequate resources specifically in terms of suitably qualified financial experts. Second, to investigate if there is any relationship between these detailed attributes and measures of audit committee expertise and financial reporting quality, which are proxied by fraudulent financial reporting and earnings management. Hence the study contributes to the extant literature of corporate governance specifically applicable for emerging economies by extending the notion of and existing definition of financial expertise in audit committees. The study draws from three theories, namely, the agency theory, resource dependence theory and behavioural decision theory, to form the framework and develop the hypotheses to be examined. The agency theory theorises that the audit committee acts as a monitoring mechanism on the preparers of financial statements, while the resource dependence theory posits that the director acts as a link between the firm and external resources, and functions as the provider of resources. The expertise element is derived from the application of behavioural decision theory and experts literature. Two separate research samples are used for this study: one for fraudulent financial reporting and the other for earnings management. Fraud firms are selected from the Securities Commission‟s Announcements and Enforcement Annual Reports, and a matched pair sampling is utilised. Whereas, samples for earnings management involved 2008 financial data of 300 firms that were ranked by highest market capitalisation.  The study is important as it provides additional knowledge about the impact of having audit committee financial experts on reducing the incidence of management fraud or reporting irregularities, and assist practitioners and policymakers, such as Malaysian Institute of Accountants and Securities Commission, to determine ways to enhance audit committee performance and improve the reliability of financial reporting, as well as improving the quality of the accounting profession

Initial

khm

Additional Information

Thesis (PhD) – Faculty of Business and Economics, Universiti Malaya, 2010.

Download

Share

COinS