A Conceptual Model of Audit Committee Effectiveness towards Financial Reporting Quality in Malaysia

Abstract

The issues of financial reporting quality relating to accrual earnings management (AEM) and real earnings management (REM) are essential to academics, professionals and regulators. The interest in examining earnings management is due to the assumption that such behaviour may lead to serious activities such as fraudulent of financial reporting. Financial decisions that are based on mislead financial statements will hurt company’s credibility in the eyes of stakeholders. Therefore, many countries including Malaysia have emphasized on the role of good corporate governance practices particularly with regards to the function of board committees. An audit committee has significant roles to ensure that financial statements produced by a company is fair and accurate. The main objective of the current study is to examine the effect of audit quality on audit committee towards financial reporting quality in Malaysia. Besides, it also aims to determine the moderation effect of audit quality on the relationship between board committees and financial reporting quality. The study uses secondary data of Malaysian public listed companies. The results of the study will fill the gap in corporate governance literature and report the importance of audit committee in ensuring the quality of financial reporting in an emerging economy such as Malaysia.