Abstract:
The study examines the effect of audit committees on financial reporting quality in annual reports of listed companies in Ghana for the period 2005 to 2017. Using a sample of 30 listed companies, content analysis technique was employed to compute financial disclosure indexes for quantity and quality of financial disclosure, while regression analysis was conducted to examine the effect of five audit committee characteristics, namely gender, size of audit committee, frequency of meetings, independence of members, and financial expertise of members on financial disclosure. The study found that, on average, listed companies in Ghana disclosed 29.1% of financial information with the quality of disclosure being 54.0%. Moreover, the study revealed that, on average, non-financial companies made more financial disclosures than financial companies. In terms of the quality of financial disclosure, financial companies appeared to disclose high-quality financial information than nonfinancial companies. The results also showed a significant positive relationship between quantity of financial disclosure and financial expertise as well as independence of audit committees. On the other hand, size of audit committee and financial expertise of audit committee were found to have a positive and significant relationship with quality of financial disclosure. The study concluded that an audit committee with the relevant characteristics is an effective corporate governance mechanism that can help to protect the interest of shareholders through the effective monitoring of financial disclosure practices of companies. The study contributes to policy by emphasising that even in the absence of mandatory financial disclosure requirements for companies in Ghana, audit committees with adequate characteristics could help in improving the quantity and quality of financial disclosure by listed companies.
