Audit Committee Characteristics and Financial Reporting Quality “Evidence from GCC Countries”

Abstract

The audit committees emerging from the board of directors are considered a crucial mechanism that monitors and supervises the work of executive management by monitoring financial activities and preparing financial reports, which enhances investor confidence. Thus, the study gave new evidence of the effect of audit committee characteristics on financial reports quality in the banking sector of Gulf Cooperation Council countries GCC during the period (2016-2023). The study variables consisted of the audit committee characteristics as independent variables, while financial reporting quality FRQ served as the dependent variable, measured using the modified Jones model of discretionary accruals. The content analysis of published financial reports is the main source of data. A multiple linear regression equation was formulated to test the effect of audit committee characteristics.

The pooled OLS model results show that AC including AC size, AC independence, AC meetings, and AC experience has a statistically significant effect on the quality of financial reports, where the R-squared reached 60.33%. Also, the study found that large sizes with non-executive members of AC have significant and positive effects on the quality of financial reports, this can be explained by increasing oversight of the actions taken by executive management, and mitigating manipulation of the financial statements by reducing receivables, thus increasing the quality of financial reports. In addition, from a statistical standpoint, the study found a positive, statistically significant effect of the presence of audit committee members with financial experience on the quality of financial reports. Finally, the study pointed out that increasing the number of AC meetings led to increased financial reports quality in the GCC banking sector. The study recommends the necessity of evaluating the independence of audit committees and increasing the number of periodic meetings to enhance supervision of the work of executive departments in a way that enhances the quality of financial reports