Audit committee effectiveness and financial reporting quality : evidence from low and mid-tier Australian firms

Recent scrutiny of the integrity of corporate reporting has led to regulatory changes designed to restore confidence in corporate governance, by improving the credibility and reliability of financial reporting. In this context, this study examines the relation between audit committee characteristic and financial reporting quality for low and mid tier listed firms on the Australian Stock Exchange in 2006. In a setting in which audit committees are not mandatory, the study investigates whether recommendations relating to audit committee formation, independence, technical expertise, size, number of meetings and charter are associated with improved financial reporting quality. Advanced measures of earnings management are used as proxies for financial reporting quality. Significant results are found for independence and financial expertise, which suggests that qualitative audit committee characteristics are important in improving financial reporting quality for low and mid tier firms.1 page(s