Audit Committee Attributes, Financial Distress and the Quality of Financial Reporting in Malaysia

Abstract

Audit committee effectiveness is one of the significant themes in corporate governance debates. We contribute to the debate by examining empirically whether audit committees imbued with the prime features are associated with reliable financial reporting in Malaysia. By using a more direct measure of financial reporting quality, this study is one of the few studies that overcome the imprecision inherent in the abnormal accruals/earnings management. The evidence suggests that the desirable characteristics which the policy makers believe would enhance the effectiveness of the audit committee in carrying out its financial oversight responsibilities do not seem to yield the intended consequence. We find an association between financial distress and financial reporting quality, consistent with Rosner (2003) and Garcia-Lara, Garcia-Osma, & Neophytou (2009). This reinforces the importance of including the distress variable in future corporate transparency studies.