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Journal of Management and Governance

Erschienen in:

21.03.2018

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

verfasst von: Josep Garcia-Blandon, Josep Maria Argilés-Bosch, Monica Martinez-Blasco, David Castillo Merino

Erschienen in: Journal of Management and Governance | Ausgabe 4/2018

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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.

Vorheriger Artikel Executive compensation in banks: insights from CEO equity incentives and securitization transactions

Nächster Artikel Performance management change in archaeological sites: The case of Herculaneum Conservation Project

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The Law contains numerous measures aiming to enhance the quality of accounting information. Among others: CEO and chief financial officer must certify financial statements; all audit committee members must be outside independent directors; and the lead partner of the audit team must change every five years. .

Regarding core duties of transparency and disclosure in corporate governance matters, the definition and regulation of directors’ duties of loyalty and diligence and the obligation of listed companies to draw up corporate governance provisions regarding the operation of their board of directors and shareholders’ meetings (CNMV 2004, p. 7).

Hypotheses 1a, 1b, 1c, 1d, 1e and 1f refer to recommendations # 47, 48, 49, 50, 51 and 52 respectively.

Although the Unified Code allows partial compliance of the recommendations, similar to other papers (e.g., Chen et al. 2007 and Sanchez et al. 2012) we only consider full compliance. Thus, partial compliance is assimilated to non-compliance.

The level of disagreement of the auditor with the financial statements of the company will depend on the number and importance of the modified opinions.

While a modified opinion in the audit report provides a clear indicator of poor accounting quality, at the same time it might also provide an indicator of high audit quality, as it can be interpreted as a prove of auditor independence.

However, we include neither GROWTH nor CFFO, as both variables are expected to be associated with the level of discretionary accruals but not with the opinion of the audit report.

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Titel: On the relationship between compliance with recommendations on the audit committee of codes of good practices and financial reporting quality
verfasst von: Josep Garcia-Blandon
Josep Maria Argilés-Bosch
Monica Martinez-Blasco
David Castillo Merino
Publikationsdatum: 21.03.2018
Verlag: Springer US
Erschienen in: Journal of Management and Governance / Ausgabe 4/2018
Print ISSN: 1385-3457
Elektronische ISSN: 1572-963X
DOI: https://doi.org/10.1007/s10997-018-9412-1

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