Audit Committee Characteristics, Financial Distress and Quality of Financial Reporting: A Descriptive Analysis

Audit committee (AC) effectiveness is one of the significant themes in corporate governance debates. This study documents the descriptive analysis of AC attributes (comprising AC financial expertise, AC diligence, AC independence, AC size and multiple directorships held by AC members in other public listed companies) among good and poor financial reporting firms. We indicate the quality of financial reporting as high or good when the company won prestigious annual awards given by the Stock Exchange, and low or poor when the " company has been publicly reprimanded by the Stock Exchange for violating the Listing Requirements pertaining to mandatory corporate disclosures, or the company received disclaimer audit opinion. This study shows that the average AC size for the good financial reporting quality companies is significantly higher than the poor companies. There is also a significant difference in AC independence between poor and good quality companies. However, the differences in average AC meeting frequency, AC financial expertise, attendance at AC meetings and AC multiple directorships between good and poor financial reporting quality companies are not statistically significant. This study also shows that 73 percent of good quality companies engage Big-3 auditors (i.e., Ernst and Young, KPMG and PricewaterhouseCoopers) while 53 percent of poor quality companies engage nonBig-3 auditors. In addition, this study also analyses the financial distress indicators between good and poor financial reporting firms. The result shows that almost two thirds of companies with good financial reporting quality do not have distress indicators, whereas 88 percent of companies with poor financial reporting quality have distress indicators.