The Role Of The Audit Committee On Financial Reporting Quality In Manufacturing Companies
DOI:
https://doi.org/10.32832/neraca.v21i2.25022Keywords:
audit committee, financial reporting quality, predictive value, corporate governanceAbstract
This study examines how the expertise, size, and meeting frequency of audit committees shape financial reporting quality among Indonesian manufacturers, measured through a predictive-value lens. This paper investigates 40 manufacturing firms listed on the Indonesia Stock Exchange across 2017–2021, drawing on 200 firm-year observations obtained through purposive sampling. Panel regression was applied, with model choice guided by the Chow, Hausman, and Lagrange Multiplier procedures, ultimately favoring a Random Effect specification. Evidence points to audit committee meeting frequency as the sole characteristic carrying a significant, positive association with reporting quality; neither expertise nor committee size registers a discernible effect. This pattern persists once the early COVID-19 years are removed from the sample, underscoring its robustness. Taken together, the findings suggest that in the Indonesian setting, oversight effectiveness hinges less on formal composition—headcount or the share of members with economics training—and more on how actively the committee convenes. By applying the predictive-value lens to audit committee research and separating the influence of each characteristic, the study adds empirical nuance to governance debates in Indonesia and points to a practical takeaway: strengthening the frequency and depth of audit committee meetings may do more for reporting quality than adjusting committee composition alone. Nevertheless, the model's overall explanatory power remains limited, as reflected in a relatively low R² and a non-significant F-test, suggesting that unobserved factors outside the model account for most of the variation in reporting quality.
References
Algrady, S. M., Huang, R., & Al-Matari, E. M. (2025). How do audit committee characteristics affect the quality of financial information? Evidence from Saudi Arabia and United Arab Emirates companies. SAGE Open, 15(1). https://doi.org/10.1177/21582440251317803
Alhumoudi, H. (2024). The impact of audit committee characteristics on financial reporting quality: Evidence from Saudi Arabia. International Journal of Professional Business Review, 9(5), e4644. https://doi.org/10.26668/businessreview/2024.v9i5.4644
Alqatamin, D. A., & Alqatamin, R. M. (2024). Audit committee characteristics and financial reporting quality: Evidence from the emerging market. Risk Governance and Control: Financial Markets & Institutions, 14(3), 86–95. https://doi.org/10.22495/rgcv14i3p9
Amanamah, R. (2024). Corporate governance, financial leverage, external audit quality, and financial reporting quality in Ghanaian companies. Financial Markets, Institutions and Risks, 8(1), 43–62. https://doi.org/10.61093/fmir.8(1).43-62.2024
Ashraf, M., Choudhary, P., & Jaggi, J. (2024). Are audit committees overloaded? Evidence from the effect of financial risk management oversight on financial reporting quality. Management Science, 70(12), 8414–8447. https://doi.org/10.1287/mnsc.2022.00360
Attia, E. F., Diab, A., Hany, H. E. E., & Abdou, H. A. (2025). Unravelling non-linear dynamics between audit committees and financial reporting quality in emerging markets. Cogent Business & Management, 12(1). https://doi.org/10.1080/23311975.2025.2524045
Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2–3), 112–131. https://doi.org/10.1016/j.jacceco.2009.09.001
Bilal, Chen, S., & Komal, B. (2018). Audit committee financial expertise and earnings quality: A meta-analysis. Journal of Business Research, 84, 253–270. https://doi.org/10.1016/j.jbusres.2017.11.048
Chronopoulos, D. K., Rempoutsika, L. M., & Wilson, J. O. S. (2024). Audit committee oversight and bank financial reporting quality. Journal of Business Finance & Accounting, 51, 657–687. https://doi.org/10.1111/jbfa.12738
Dechow, P. M. (1994). Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3–42. https://doi.org/10.1016/0165-4101(94)90016-7
DeZoort, F. T., Hermanson, D. R., Archambeault, D. S., & Reed, S. A. (2002). Audit committee effectiveness: A synthesis of the empirical audit committee literature. Journal of Accounting Literature, 21, 38–75.
Febrine, & Itan, I. (2023). Pengaruh komite audit, direktur dan auditor eksternal terhadap kualitas pelaporan keuangan pada perusahaan yang terdaftar di Bursa Efek Indonesia. Jambura Accounting Review, 4(1), 27–40. https://doi.org/10.37905/jar.v4i1.60
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1–3), 405–440. https://doi.org/10.1016/S0165-4101(01)00018-0
Indella, D. R., & Husaini. (2016). Efektivitas komite audit, kualitas auditor eksternal dan kemungkinan kecurangan pelaporan keuangan. Jurnal Fairness, 6(3), 201–218. https://doi.org/10.33369/fairness.v6i3.15137
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Lestari, A. A., & Prayogi, A. (2024). Efektivitas komite audit, kualitas audit eksternal, kesulitan keuangan dan kualitas pelaporan keuangan]. JAKA (Jurnal Akuntansi dan Keuangan): Research, Invent, Solve and Share, 3(2), 37–50. https://doi.org/10.58436/jaka.v3i2.2160
Liyayi, K. H., Fwamba, R., & Ondiek, P. A. B. (2023). Audit committee independence and financial reporting quality of licensed microfinance institutions in Kenya. IOSR Journal of Business and Management, 25(1), 18–29. https://doi.org/10.9790/487X-1401011829
McDonough, R. P., & Yan, C. J. (2024). Maintaining maintenance: The real effects of financial reporting for infrastructure. Contemporary Accounting Research, 41(3), 1952–1985. https://doi.org/10.1111/1911-3846.12970
Okon, E. (2024). Audit committee effectiveness and financial reporting quality of listed non-financial firms in Sub-Saharan Africa: The moderating role of board independence. Journal of Accounting and Financial Management, 10(8), 1–20. https://doi.org/10.56201/jafm.v10.no8.2024.pg1.20
Syahputra, M. D. H., Anshari, R., & Pribadi, M. I. (2025). Dampak keahlian komite audit dan frekuensi rapat komite audit terhadap kualitas pelaporan keuangan di sektor infrastruktur. IKRAITH-EKONOMIKA, 8(2), 624–632. Retrieved from https://journals.upi-yai.ac.id/index.php/IKRAITH-EKONOMIKA/article/view/4931
Velury, U., & Jenkins, D. S. (2006). Institutional ownership and the quality of earnings. Journal of Business Research, 59(9), 1043–1051. https://doi.org/10.1016/j.jbusres.2006.05.001
