Audit Committee, External Auditor, and Financial Reporting Quality in Indian Corporate Sector

Document Type : Original Article


1 Department of Accounting, Dezful Branch, Islamic Azad University, Dezful, Iran

2 Formerly Professor of Accounting, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi - 110007, INDIA

3 Professor of Marketing and International Business, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi - 110007, INDIA



This study empirically examines the association between corporate governance and
financial reporting quality in Indian corporate sector. In this regard, corporate
governance has been measured by characteristics of two mechanisms, namely audit
committee and external auditors as external mechanism. Furthermore, accruals quality
as attribute of earnings quality has been used as the proxy for financial reporting
quality. This study uses 1250 firm-year observations from a sample of 250 firms drawn
from top 500 Indian companies listed on National Stock Exchange (NSE) over a fiveyear period from 2008 to 2012. In order to test developed hypotheses, panel data
regression with has been employed to determine the influence of corporate governance
characteristics on financial reporting quality measured by earnings quality attributes.
With regard to audit committee characteristics, this study provides some evidence that
although audit committee size, and audit committee independence are found to be
significantly related to financial reporting quality, audit committee meetings and audit
committee accounting expertise have no significant relationship with financial reporting
quality. Regarding external auditor, the findings demonstrate that contradictory to the
expectation, audit fee is not significantly associated with financial reporting quality. The
results for last hypothesis show that non-audit fee ratio has a negative and significant
relationship with financial reporting quality. The results are also robust to additional test
using year and industry as dummy variables.


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