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Effect of Audit Committee Expertise on Financial Reporting Quality of Listed Companies in Nigeria

Abstract

Audit committee expertise is an important component of effective corporate governance because members with appropriate accounting, financial, auditing, and industry knowledge are better positioned to oversee financial reporting processes and evaluate the judgments made by management. Audit committee expertise refers to the level of professional knowledge, qualifications, experience, and competence possessed by audit committee members in areas such as accounting, auditing, finance, financial reporting, risk management, and corporate governance. Financial reporting quality reflects the extent to which financial statements provide relevant, reliable, accurate, complete, comparable, timely, and faithfully represented information to users. In Nigeria, listed companies operate within an environment characterized by increasing regulatory requirements, complex financial transactions, economic uncertainty, technological developments, and heightened investor expectations regarding the credibility of financial information. These conditions have increased the importance of competent audit committees capable of effectively reviewing financial statements, assessing accounting estimates, challenging management decisions, monitoring internal controls, and communicating with internal and external auditors. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote effective corporate governance and financial reporting practices among listed companies. Despite these regulatory efforts, concerns regarding earnings management, financial misstatements, weak internal controls, inadequate disclosure, and non-compliance with financial reporting requirements continue to affect the credibility of corporate reports. Although previous studies have examined audit committee characteristics and financial reporting quality, empirical evidence regarding the effect of audit committee expertise on financial reporting quality of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of audit committee expertise on financial reporting quality of listed companies in Nigeria. The study is anchored on Agency Theory, Resource Dependence Theory, and Stewardship Theory. Agency Theory suggests that financially and professionally competent audit committee members can strengthen managerial monitoring, reduce information asymmetry, and limit opportunities for earnings manipulation. Resource Dependence Theory explains that audit committee members with specialized accounting and financial expertise provide valuable knowledge and resources that enhance the committee's ability to monitor corporate reporting and risk management activities. Stewardship Theory emphasizes the role of competent governance structures in supporting responsible managerial behaviour, accountability, and the preparation of high-quality financial reports. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between audit committee expertise and financial reporting quality of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to audit committee members, chief financial officers, finance managers, accountants, financial controllers, internal auditors, external auditors, company secretaries, compliance officers, and other professionals involved in financial reporting and corporate governance within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Audit committee expertise will be measured using members' accounting qualifications, financial expertise, auditing experience, professional certifications, knowledge of financial reporting standards, risk management knowledge, industry experience, and corporate governance experience, while financial reporting quality will be measured using reporting accuracy, relevance, faithful representation, comparability, timeliness, completeness, reliability, compliance with International Financial Reporting Standards (IFRS), and the extent of earnings management. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding audit committee expertise and financial reporting quality. Structural Equation Modeling (SEM) will be employed to examine the effect of audit committee expertise on financial reporting quality. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that audit committee expertise will have a significant positive effect on the financial reporting quality of listed companies in Nigeria. Audit committee members with strong accounting, auditing, financial, and industry expertise are expected to provide more effective oversight of financial reporting processes, critically evaluate management's accounting judgments, identify potential reporting irregularities, and strengthen communication with internal and external auditors. Their expertise is also expected to improve monitoring of internal controls, enhance compliance with IFRS, reduce earnings management, and limit the likelihood of material financial misstatements. Furthermore, financially knowledgeable audit committees are expected to improve corporate accountability, strengthen investor confidence, enhance audit effectiveness, and promote greater transparency in corporate financial reporting. Conversely, audit committees with inadequate financial expertise may experience difficulties in identifying complex accounting issues, challenging management assumptions, evaluating audit findings, and monitoring financial reporting risks. Consequently, stronger audit committee expertise is expected to contribute significantly to improving the reliability, credibility, transparency, and overall quality of financial reports prepared by listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on auditing, corporate governance, accounting, and financial reporting by providing comprehensive evidence on the relationship between audit committee expertise and financial reporting quality of listed companies in Nigeria. Unlike previous studies that broadly examined audit committee characteristics such as size, independence, or meeting frequency, this research specifically evaluates audit committee expertise as a determinant of financial reporting quality using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), listed companies, audit committees, audit firms, professional accounting bodies, investors, policymakers, regulators, and academic researchers regarding the importance of financially competent audit committees in strengthening corporate financial reporting. The study will also provide evidence-based recommendations for improving audit committee appointment criteria, strengthening accounting and financial expertise requirements, promoting continuous professional development, enhancing audit committee training, improving regulatory oversight, and ensuring effective audit committee monitoring of financial reporting processes among listed companies in Nigeria.

Keywords: Audit committee expertise, financial reporting quality, listed companies, corporate governance, accounting expertise, financial expertise, audit quality, earnings management, Structural Equation Modeling (SEM), Nigeria.