On the relationship between compliance with recommendations on the audit committee of codes of good practices and financial reporting quality

Research output: Indexed journal article Articlepeer-review

4 Citations (Scopus)

Abstract

Codes of good practices provide a soft alternative to the hard legislation approach to corporate governance. These codes include a set of recommendations that companies are expected to follow in order to enhance governance structures and practices. Some of these recommendations specifically aim to improve the effectiveness of the audit committee. We investigate the relationship between the level of compliance with recommendations on the audit committee of the Spanish Unified Code and financial reporting quality, as measured by discretionary accruals and by the opinion of the audit report. We use a sample of companies listed in the Spanish stock market for the years between 2007 and 2013. Results show a strong and positive relationship between the level of compliance with recommendations and the quality of financial reporting. We also report significant results for some specific recommendations. These results are robust to various checks. Therefore, the level of compliance with recommendations on the audit committee might provide a feasible and reliable indicator of the quality of financial reports released by the company.

Original languageEnglish
Pages (from-to)921-946
Number of pages26
JournalJournal of Management and Governance
Volume22
Issue number4
DOIs
Publication statusPublished - 1 Dec 2018

Keywords

  • Audit committee
  • Codes of good practices
  • Financial reporting quality
  • Recommendations

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