On the relationship between compliance with recommendations on the audit committee of codes of good practices and financial reporting quality

Josep Garcia-Blandon (), Josep Maria Argilés-Bosch (), Monica Martinez-Blasco () and David Castillo Merino ()
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Josep Garcia-Blandon: IQS School of Management (Universitat Ramon Llull)
Josep Maria Argilés-Bosch: Department of Accounting (Universitat de Barcelona)
David Castillo Merino: IQS School of Management (Universitat Ramon Llull)

Journal of Management & Governance, 2018, vol. 22, issue 4, No 6, 946 pages

Abstract: Abstract Codes of good practices provide a soft alternative to the hard legislation approach to corporate governance. These codes include a set of recommendations that companies are expected to follow in order to enhance governance structures and practices. Some of these recommendations specifically aim to improve the effectiveness of the audit committee. We investigate the relationship between the level of compliance with recommendations on the audit committee of the Spanish Unified Code and financial reporting quality, as measured by discretionary accruals and by the opinion of the audit report. We use a sample of companies listed in the Spanish stock market for the years between 2007 and 2013. Results show a strong and positive relationship between the level of compliance with recommendations and the quality of financial reporting. We also report significant results for some specific recommendations. These results are robust to various checks. Therefore, the level of compliance with recommendations on the audit committee might provide a feasible and reliable indicator of the quality of financial reports released by the company.

Keywords: Codes of good practices; Recommendations; Audit committee; Financial reporting quality (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10997-018-9412-1

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