Board Monitoring, Audit Committee Effectiveness, and Financial Reporting Quality: Review and Synthesis of Empirical Evidence

Journal of Forensic & Investigative Accounting, Vol. 1, No. 2, July-December 2009

42 Pages Posted: 14 Jul 2008 Last revised: 15 Oct 2010

See all articles by Luo He

Luo He

Concordia University, Quebec - John Molson School of Business

Réal Labelle

HEC Montréal - Stephen A. Jarislowsky Chair in Governance

Charles Piot

Univ. Grenoble Alpes; University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

Daniel B. Thornton

Smith School of Business at Queen's University

Date Written: December 31, 2009

Abstract

We review and synthesize the results of empirical studies of associations between corporate oversight measures and financial reporting quality (FRQ). We examine two oversight components, board characteristics and audit committee characteristics. For each component, we summarize associations between variables contributing to monitoring effectiveness and three presumptive FRQ monitoring outcomes: (1) ex post consequences of low FRQ, such as financial reporting fraud; (2) earnings management measures, such as abnormal accruals; and (3) perceived informativeness of financial reports, manifest in earnings-returns associations, earnings response coefficients, and analyst perceptions of FRQ. Our classification scheme provides a coherent framework for synthesizing the implications of empirical findings, highlighting the role of different corporate governance variables in enhancing different aspects of FRQ. This synthesis has the potential to inform regulators, boards of directors, and forensic accountants who are concerned with improving the oversight of public corporations and reducing opportunities for managers and others to engage in financial fraud.

Keywords: Audit Committees, Board of Directors, Earnings Management, Financial Reporting Quality, Fraud, Value Relevance of Earnings.

JEL Classification: M41

Suggested Citation

He, Luo and Labelle, Réal and Piot, Charles and Thornton, Daniel B., Board Monitoring, Audit Committee Effectiveness, and Financial Reporting Quality: Review and Synthesis of Empirical Evidence (December 31, 2009). Journal of Forensic & Investigative Accounting, Vol. 1, No. 2, July-December 2009. Available at SSRN: https://ssrn.com/abstract=1159453

Luo He

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Réal Labelle (Contact Author)

HEC Montréal - Stephen A. Jarislowsky Chair in Governance ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514 340 6374 (Phone)

Charles Piot

Univ. Grenoble Alpes ( email )

Grenoble Cedex 9, F-38040
France

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

150 rue de la Chimie, BP47
Grenoble Cedex 9, 38040
France

Daniel B. Thornton

Smith School of Business at Queen's University ( email )

143 Union Street, #358
Kingston, Ontario K7L 3N6
Canada
613-328-5213 (Phone)
613-533-2321 (Fax)

HOME PAGE: http://smith.queensu.ca

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