Audit committee accounting expertise and forward-looking disclosures

Abstract

Purpose The purpose of this study is to examine how the accounting expertise of audit committee members is associated with the disclosure of forward-looking information. Design/methodology/approach Manual content analysis is used to analyze forward-looking information disclosed in annual reports as well as gather data about the accounting expertise of directors. Regression analysis is performed to study the association between the disclosure variables and the accounting expertise of audit committee members. Findings The results show that the accounting expertise of audit committee members is associated with forward-looking disclosure practices, particularly with information of a financial and strategic nature. Practical implications The evidence has direct implications for companies in the selection of directors, as stakeholders may demand nomination committees to appoint audit committees with the accounting experts. They may also request regulatory actions regarding the structure of the audit committee, as these add to the evidence on the benefits of selecting such experts. Social implications The evidence on the role of accounting expertise could also help the US Securities and Exchange Commission (SEC) to narrow the definition of financial expertise to specifically consider accounting expertise, as is already happening in the EU context. Originality/value This paper extends prior research on corporate governance and voluntary disclosure by showing the association between the company having at least one accounting expert in the audit committee and the level of disclosure of value-relevant information.

Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?

“…The corporate board of directors (BODs) and its committees, such as AC, are relevant CG mechanisms that oversee managerial actions (Fama and Jensen 1983;Blue Ribbon Report 1999;Smith Report 2003;Lu and Boateng 2018;Jouida 2019). AC members have great control over the information to be disclosed in annual reports to protect shareholders' interests (Li et al 2008;Haji 2015;Abad and Bravo 2018).…”

“…AC plays a crucial role in fulfilling investors' needs for clear, relevant, and complete information to reduce information asymmetry and agency cost and align the interests of both shareholders and managers (Samaha et al 2015). As a result of increased concerns about CG and financial reporting after financial scandals that were witnessed around the world, regulators introduce rules and recommendations to enhance CG practice in general and AC effectiveness in particular to improve financial reporting and disclosure practice to protect shareholder interests (Dezoort et al 2002;Abad and Bravo 2018;Sultana et al 2019). We examine the impact of CG reforms on FLD on narrative disclosure practice in emerging economies, with a particular focus on Oman.…”

The Association between Auditor Type and the Extent of Forward-Looking Disclosures

“…Forward-looking disclosures in integrated reports will assist investors in evaluating the firm's future performance, ability to create value (Menicucci, 2013, Bozanic, et al, 2014 and make better investment decisions (OSC, 2008;Leung, 2015;Kılıç and Kuzey, 2018;Abad and Bravo, 2018). However, forward-looking disclosures are highly uncertain and may differ significantly from actual results (Zaglol, 2004;Celik, et al, 2006), leading to potential litigation and reputation damage to the disclosing firms (Abdulrahman, 2010;PWC, 2013;Bozanic, et al, 2013;Kılıç and Kuzey, 2018).…”

The Impact of Audit Fees on Forward-Looking Disclosures in Integrated Reports

“…Forward-looking disclosures in integrated reports will assist investors in evaluating the firm's future performance, ability to create value (Menicucci, 2013, Bozanic, et al, 2014 and make better investment decisions (OSC, 2008;Leung, 2015;Kılıç and Kuzey, 2018;Abad and Bravo, 2018). However, forward-looking disclosures are highly uncertain and may differ significantly from actual results (Zaglol, 2004;Celik, et al, 2006), leading to potential litigation and reputation damage to the disclosing firms (Abdulrahman, 2010;PWC, 2013;Bozanic, et al, 2013;Kılıç and Kuzey, 2018).…”