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Effect of audit
The effect of audit committee committee
effectiveness and audit effectiveness

quality on corporate voluntary

disclosure quality 17

Ben Kwame Agyei-Mensah Received 16 April 2018

Revised 28 June 2018
Department of Finance and Accounting, 5 August 2018
Accepted 29 August 2018
Solbridge International School of Business, Daejeon, Korea

Abstract
Purpose – The purpose of this paper is to examine the linkages between audit committees’ (AC)
effectiveness, audit quality and corporate voluntary disclosure quality (VDQ).
Design/methodology/approach – Empirical tests address 144 firm-year observations drawn from
Ghanaian listed companies during 2013–2016.
Findings – The results document a substitute and complementary effect between the presence of Big Four
auditor and effective AC in increasing quality voluntary disclosure.
Originality/value – This study is one of the few that have examined the effect of AC effectiveness and audit
quality on corporate VDQ. The findings lend credence to the belief that AC effectiveness and Big Four
auditors complement each other to enhance quality of voluntary information disclosure.
Keywords Voluntary disclosure, Audit quality, Audit committee
Paper type Research paper

1. Introduction
This paper examines the linkages between audit committee’s (AC) effectiveness, audit
quality and corporate voluntary disclosure quality (VDQ). Leung and Horwitz (2004) argue
that disclosure is an obvious requirement for an equity market to function more effectively.
This has become more significant in developing equity markets such as Ghana, where
attempts are being made to reduce the information gap between insiders and investors.
Many investors tend to shy away from the equity markets, due to the poor information flow
between managers and investors (Chau and Gray, 2010) and the low levels of disclosure in
the published annual reports (Tower et al., 2011; Kansal et al., 2014). The most important role
of corporate governance is to ensure a company’s financial reporting quality. Thus the
interaction among corporate governance actors is crucial to achieve this objective. This
study focuses on two of these corporate governance actors, namely AC and external
auditors. In particular, this study attempts to investigate the nature of relationship between
ACs and external auditors in enhancing VDQ.
ACs have the responsibility of monitoring the compliance with legal and statutory rules, such
as financial reporting disclosure requirements (Owusu-Ansah and Yeoh, 2005). Agency theory
suggests that establishment of an AC serves as a means of reducing information asymmetry,
managerial opportunism and improving disclosure quality (Chung et al., 2005). Ho and Wong
(2001) also argue that the presence of an AC influence the level of corporate disclosure.
The agency problems related to ownership and control segregation also result in the
request for external audit. The audit function thus assists to decrease information
asymmetry and conflict of interest that occur among managers and shareholders (Arens
African Journal of Economic and
et al., 2010). Hence, the auditing process is presumed to assist as a monitoring mechanism Management Studies
that would help improve the quality of voluntary information disclosures. Vol. 10 No. 1, 2019
pp. 17-31
Botosan (2004) argues that disclosure quality is a function of information quality © Emerald Publishing Limited
2040-0705
attributes proposed by a regulatory framework. Hence the quality of voluntary disclosure DOI 10.1108/AJEMS-04-2018-0102
AJEMS (QVD) is measured using the IASB’s qualitative characteristics of financial information. The
10,1 International Accounting Standards Board’s (IASB’s) Framework for the Preparation and
Presentation of Financial Statements states that there are some qualitative characteristics
that make the information provided in financial statements useful to users. These
qualitative characteristics are relevance, faithful representation, comparability and
understandability. According to the IASB, relevance and faithful representation are the
18 fundamental qualities, while comparability and understandability are enhancing qualities.
Prior studies only examined the relations between the characteristics of the AC and
indicators of audit quality on reducing the earnings management (Peasnell et al., 2003;
Cohen et al., 2008; Krishnan and Visvanathan, 2008) markets. Currently no study has
investigated the interaction between effective AC and external audit quality and the effect
on quality of corporate voluntary disclosures. This study is set to fill the research gap.
According to Zoysa and Rudkin (2010), empirical studies on corporate governance and
disclosure quality reveal that the majority of them have been conducted in countries with
developed capital markets, and studies conducted in countries with emerging capital
markets are extremely sparse. The only research conducted in a developing country context
is the one by Chakroun and Hussainey (2014).
Based on the aforementioned and in order to ensure clarity, the main objectives of this
paper are:
(1) to measure the quality of corporate voluntary disclosure in the listed firm’s annual
reports; and
(2) to study the interaction between an effective AC and the presence of an external
audit function to enhance corporate VDQ.
First, this study focused on the AC because it is one of the elements responsible for
overseeing the interests of shareholders and supervising financial statements. The AC needs
other mechanisms, such as the quality of external auditor, to mitigate annual report
manipulation. Moreover, the study tests if these mechanisms (AC and audit quality) have
complementarity or substitution effects. Finally, the empirical analysis is conducted in the
Ghanaian context to explore how effective the AC is, besides the presence of the external
audit function in enhancing corporate VDQ. This study adds to the existing knowledge
regarding the interplay between ACs and external auditors in ensuring financial reporting
quality. More specifically this study develops an empirical analysis in which AC
effectiveness mediates the relationship between audit quality and VDQ.
This study makes several important contributions. The analysis fills a gap in the extant
literature where very little research has examined the relationship between effective AC and
audit quality on corporate VDQ. The findings are consistent with agency theory, suggesting
that effective AC and audit quality tend to increase corporate VDQ.
The rest of the paper is organized as follows: Section 2 reviews the literature on the
relationship between AC, audit quality and VDQ and states the hypotheses. Section 3
discusses the methodology, including sample selection and estimation equations. Section 4
presents the results and their interpretations. Section 5 concludes the study.

2. Literature review and development of hypotheses

2.1 Relation between audit committee effectiveness, audit quality and corporate VDQ
AC is defined as a committee appointed by a company as a liaison between the board of
directors and the external auditors, this committee normally has a majority of non-executive
directors and is expected to view the company’s affairs in a detached and dispassionate
manner (Habbash, 2010). ACs were relatively rare until the 1970s, when large corporations
increased their voluntary formation (Appah and Appiah, 2011). The AC serves as a major
communication intermediary between major parties in the financial reporting process (e.g. Effect of audit
board of directors, corporate management, internal auditors and external auditors) by committee
providing a key monitoring oversight function (e.g. via reviews to nominate auditors, scope effectiveness
of external and internal audit work, implementation of internal controls). It meets with the
company’s external auditors to discuss accounting, auditing, internal control and financial
reporting matters. The external and internal auditors have unrestricted access to the finance
and AC. For an AC to be effective, it should be independent and include non-executive 19
directors (Turley and Zaman, 2004). Mangena and Pike (2005) stated that the existence of an
AC provides the necessary expertise and is also associated with reliable financial reporting
by helping to reduce the incidence of irregularities and errors. An effective audit
environment reduces the conflict between owners and managers and reduces monitoring
costs by providing more information (Carcello and Neal, 2003). Hoitash et al. (2009) find a
positive association between ACs and disclosures.
The Ghana Corporate Governance guidelines on best practices issued by the Securities
and Exchange Commission require all companies to establish ACs. The AC should comprise
at least three directors, the majority of whom should be independent directors and the
chairman should be an independent director. For quality presentation and disclosure of
financial and non-financial information, companies in Ghana are required to comply with
the International Financial Reporting Standards (IFRS) which have been adopted by the
Institute of Chartered Accountants Ghana.
AC attributes used to measure AC effectiveness in this study are; AC financial expertise,
AC size, AC previous experience, AC independence and AC meeting. Agency theory
suggests that establishment of an AC serves as a means of reducing information
asymmetry, managerial opportunism and improving disclosure quality (Chung et al., 2005).
A review article on the evidence of the effectiveness of financial expertise on aspects of
financial reporting by Bédard and Gendron (2010) reports that 57 percent of the studies
found a positive association between financial expertise and ACs effectiveness, while
10 percent found a negative association and the remaining 33 percent indicated a
non-significant association. Ho and Wong (2001) argue that the presence of an AC influences
the level of corporate disclosure. A properly functioning AC is thus critical in enhancing
effective oversight of the financial reporting process and corporate VDQ. ACs with financial
expertise are important as they show support for auditors (DeZoort et al., 2003), the
credibility of the financial statement (Burrowes and Hendriks, 2005), and the high quality of
reported earnings (Choi et al., 2004). According to Klein (2002), in their role as overseers of
the firm’s financial reporting process, members of the AC meet regularly with the firm’s
managers and auditors to review the corporation’s financial statements, audit process and
internal accounting controls.
Mitchell et al. (2008) showed that the relation between an AC and the quality of audit can
potentially enhance the quality of published financial statements. Dunn and Mayhew (2004)
provide evidence that firms select auditors as part of their disclosure strategy,
suggesting the choice of an industry-specialist signals a firm’s decision to provide
high-quality disclosures.
The independent AC is a central characteristic for the effectiveness of the financial
reporting process. On the other hand, Chen et al. (2005) showed that an independent AC can
possibly employ industry specialist auditors. Nevertheless, they discovered no significant
association between the AC expertise and the employment of industry specialist auditors.
Abbott and Parker (2000) investigated the impact of the independent ACs on the
selection of external auditors. They found that companies with independent ACs were more
likely to select industry specialist external auditors.
There is no universal definition for audit quality. Salehi et al. (2017) summarized the
various definitions of audit quality as follows.
AJEMS The most common definitions of audit quality involve the following elements:
10,1 • the possibility of significant errors in the financial statements that the auditor is able
to decipher;
• the possibility that the auditor might not issue conditional report for the financial
statements containing important errors;
20 • an assessment of the auditor’s ability to reduce the biased errors and misstatements
and to improve the quality of accounting data; and
• the accuracy of the information about which the auditor has made reports.
The aforementioned definitions cover different levels of the auditors’ competence and
independence in the audit (true independence) and also the perception of their independence
by the users.” DeAngelo (1981) defines audit quality as a chance or probability of auditors to
identify and report significant errors. Mansi et al. (2004) identified two roles of an external
auditor: the insurance role and the information role. As an insurance provider, an external
auditor is a person who is legally accountable for damages to financial statement users. As an
information intermediary, an external auditor is a person who independently and effectively
verifies the correctness of company’s financial statements before they are published.
The Ghana Corporate Governance guidelines on best practices issued by the Securities
and Exchange Commission require all companies to appoint external auditors but the
companies are free to appoint their own external auditors. There is no requirement in Ghana
that companies listed on the stock market should use the services of the Big Four auditors.
Variables that have been studied in the past on audit quality are; audit firm size, audit
fees and auditor tenure. Wang et al. (2008, p. 18) argue that larger audit firms (e.g. the Big
Four audit firms) are more likely to be associated with companies which provide better
disclosure practices. They explain that “large auditors have a stronger incentive to
maintain independence and to impose more stringent and extensive disclosure standards
because they have more to lose from damage of their reputations.” Kamolsakulchai (2015)
supported this assertion when he posits that audit firm size is highly associated with a
greater level of disclosure.
Francis and Yu (2009) and Choi et al. (2010) have shown that audit firm size is a primary
determinant of audit quality. However, earlier studies by Jeong and Rho (2004) found that
different sizes of audit firms do not significantly affect the audit quality.
Bepari and Mollik (2015) found that firms’ audit quality is an important factor to ensure
increased level of transparency and compliance in the financial reporting process. An
enhancing quality of the information provided in financial statements is that it should be
presented in such a way that it is readily understandable by users, i.e., it should be
presented in a clear and concise fashion (IASB, 2010). Ahmed and Karim (2005) found that
companies audited by the Big Four audit firms comply more with reporting requirements
than non-Big Four audit firms. Voluntary disclosures are generally used to improve
understandability hence Big Four audit firms can advise their clients to comply with this
requirement. Therefore, it is expected that large audit firms will be more concerned about
what their clients disclose.
In an earlier research, a positive relationship between corporate disclosure and the type
of auditing firm has been found (e.g. Camfferman and Cooke, 2002; Wang et al., 2008).
Nevertheless, other researchers such as Alsaeed (2006) and Ousama et al. (2012) found no
significant relationship. It has been shown that audit fee is negatively correlated with the
possibility of financial statement manipulation. This means that a higher audit fee results in
a better audit quality (Hoitash et al., 2007; Stanley and DeZoort, 2007). Yuniarti (2011),
however, finds a positive association between audit fees and audit quality. Ettredge et al.
(2013) also claim that audit quality is compromised when the audit fee is reduced.
 Rahmina and Agoes (2014) found that in general auditor independence, audit tenure and Effect of audit
audit fee have a positive influence on audit quality. Numerous researchers revealed a committee
positive association between audit fees and earnings management (Antle et al., 2006; Alali, effectiveness
2011; Lin and Hwang, 2010). Abbott et al. (2006) highlighted that downward earnings
management is related to less audit fees, while upward earnings management is related to
greater audit fees.
Research conducted by Ghosh and Moon (2005) and Kusharyanti (2003) resulted in 21
findings that audit quality increases with the length of audit tenure. This is contrary
to the results of a research conducted by Indah (2010) which state that the longer the
auditor relationship with clients, could decrease the level of audit quality, because
the longer the auditor relating to client lead the auditor to be bias and impaired
the independency.
The study intends to examine the interaction between an effective AC and the presence
of the external audit function to increase corporate VDQ. The link between effective AC,
audit quality and interaction between these variables and their effect on corporate VDQ is
shown in Figure 1. Based on the preceding discussions, the study posits three hypotheses
as follows:
H1. When there is an effective AC and a Big Four auditor, the likelihood of corporate
VDQ increases.
H2. When there is an effective AC and the audit fee charged disclosed the likelihood of
corporate VDQ increases.
H3. When there is an effective AC and a long tenure of the auditor, the likelihood of
corporate VDQ increases.

3. Research method
3.1 Sample
The research includes 43 companies listed on the GSE. The characteristics of the listed
companies enhance the study since they have similar reporting format over the years.
However, the sample of the study includes the firms that meet the following criteria:
• the firms should have been listed on the GSE for, at least, five years prior to the
study; and
• firms with unavailable data were excluded.
Applying these criteria resulted in a sample of 36 firms.
The data used in the empirical analysis were derived from the financial statements of
the 36 listed firms on the GSE during a four-year period, 2013–2016. Four years were

Audit quality Interaction between

Audit committee Audit Committee Figure 1.
effectiveness effectiveness and Link between audit
Audit Quality committee, audit
quality and interaction
between audit
committee effectiveness
and audit quality and
their effect on
Corporate voluntary
voluntary disclosure
disclosure quality
quality
AJEMS selected, because these were the latest financial statements. In all, 144 firm-years
10,1 reports for the period 2013–2016 were used. The annual reports were downloaded from
the firms’ website.

3.2 Variables measurement

3.2.1 Dependent variable. QVD is the dependent variable in the current study.
22 QVD Index measures the QVD using the qualitative characteristics of financial
information as advocated by the IASB’s IFRS theoretical framework. A total of 20 key criteria
has been used by Beest et al. (2009), Beest and Braam (2012) (see Appendix 1) based on IASB
authoritative pronouncements are used to construct the quality index. This quality-oriented
template comprises four elements of qualitative characteristics of the IASB’s framework,
include: relevance, faithful representation, comparability and understandability. This
checklist has also been used by Chakroun and Hussainey (2014). A company was initially
awarded a score of 1 if an item met the characteristic and 0 if an item did not meet the
characteristic. The total number of items disclosed by a company was then divided by the
expected total number of disclosure score of (20) and the result was used as the index of
disclosure. The disclosure index can be mathematically shown as follows:
Pm
Actual disclosure di
Voluntary Disclosure Quality Index ¼ ¼ P1n
Total possible disclosureð20Þ 1 di

where di ¼ 1 if the item di is disclosed (0 if not disclosed), m the number of items disclosed and
n the maximum number of disclosure items possible.
3.2.2 Measurement of independent variables. Following prior studies (Sultana et al., 2015;
Ika and Ghazali, 2012; Nelson and Shukeri, 2011; Mohamad-Naimi et al., 2010; Lin et al., 2006;
DeZoort et al., 2002) this study uses five AC variables best proxying AC effectiveness for
analysis. These are: AC financial expertise, AC previous experience, AC size, independent
AC and AC meeting.
Measurement of effectiveness of audit committee. The study model includes AC
variables such as: ACPE, a dummy variable that is 1 where at least one director of the AC
has prior AC experience and 0 otherwise. Additionally, ACSZ: the number of members
forming the AC, and ACIND, a dummy variable that is 1 where companies have an
independent AC, and 0 otherwise. The study measured this variable as follows: an AC is
independent when it is formed exclusively by external and independent members. ACFE
it is a dummy variable that takes the value1 if the AC includes at least one member with
finance expertise in each year during the period 2013–2016, and 0 otherwise. ACMT is a
variable that measures the number of meetings of the AC.
This study uses three proxies as measurement of audit quality: audit firm size
(AUDFSZ), audit fees (AUDFEE) and auditor tenure (TENURE). These measures have been
used by Zgarni et al. (2016), Khlif and Samaha (2016) and Wahab et al. (2011). Furthermore,
the study tests the interaction between effectiveness of AC and external auditor
(ACSCORE × AUDFSZ + ACSCORE × AUDFEE + ACSCORE × TENURE).
ACSCORE × AUDFSZ: it is a variable used to measure the interaction of the ACSCORE
and AUDFSZ and takes the value 1 if a firm-year observation has an external audit function
(Big Four auditor) and an effective AC, 0 otherwise.
ACSCORE × AUDFEE: it is a variable used to measure the interaction of the ACSCORE
and AUDFEE and takes the value 1 if a firm-year observation has disclosed an external
audit fee and an effective AC, 0 otherwise.
ACSCORE × TENURE: it is a variable used to measure the interaction of the ACSCORE
and TENURE and takes the value 1 if a firm-year observation has an external audit function
(tenure of auditor) and an effective AC, 0 otherwise.
 Finally, the empirical model of the study also includes three control variables related to Effect of audit
firm-specific characteristics (i.e. board size, profitability (ROA) and leverage). committee
Regression model. A linear-multiple regression analysis was used to test the interaction effectiveness
between VDQ (dependent variable) and effectiveness of AC and audit quality (independent
variables). The following model is estimated:
VDQ ¼ aþb1 ACSCORE þb2 AUDFSZ þb3 AUDFEEþb4 TENURE
23
þb5 ACSCORE  AUDFSZ þb6 ACSCORE  AUDFEE
þb7 ACSCORE  TENUREþb8 BDSþb9 ROA þb10 LEV þe:

To test the construct validity of the scores of the effectiveness of AC (ACSCORE), a factor
analysis was performed on the items in their respective measure. The aim of the factor
analysis is to limit the whole of the criteria selected to characterize various dimensions of the
governance variable in a minimum number of factors. That is, the five individual data items
of AC; AC prior experience, its size, the independence, expertise and the frequency of the
meetings of the members of AC were factor analyzed to determine if they loaded on to two
factors as expected. Results given in Table I, in the rotated component matrix, confirm a
correct loading into two factors.

4. Empirical results
4.1 Descriptive statistics
Table II presents descriptive statistics for the model variables of this study. QVD show a
low-mean compliance level of 51.7 percent and ranges from a minimum of 30 percent to a
maximum value of 65 percent with a standard deviation of 5 percent. This implies that the
listed firms are not fully complying with the IAB’s qualitative characteristics of financial
statements. The descriptive result shows that the Big Four auditors audit 84 percent of the

Rotated component matrix

Component
1 2

ACFE 0.431 0.540 Table I.

ACSZ 0.660 0.051 Factor analysis of
ACIND −0.441 0.702 items in audit
ACPE 0.733 0.055 committee
ACMT −0.129 −0.541 effectiveness

Mean SD Minimum Maximum

ACSCORE 0.473 0.4750 −1.5 0.85

QVD 0.517 0.0515 0.31 0.65
BODS 8.407 1.9216 4.0 12.00
LEV 0.889 0.5600 0.1 2.77
PROF 6.487 8.6639 −8.0 33
AUDFSZ 0.840 0.3678 0.0 1.0
AUDFEE 0.884 0.7834 0.0 1.0
TENURE 4.0 1.0708 3.0 6.0 Table II.
Note: n ¼ 144 Descriptive statistics
AJEMS sampled companies; 88 percent of the sampled firms disclosed audit fees in their annual
10,1 reports and the mean auditor tenure is four years with a maximum of six years.
To meet the requirements of the regression analysis assumptions, the correlation
between the study variables and test for multicollinearity problems were examined.
Table III presents the correlation results for the study variables. The correlation analysis
shows that ACSCORE has a significant relationship with BODS at 0.05 level ( p ¼ 0.015),
24 TENURE at 0.05 ( p ¼ 0.024) and AUDFSZ at 0.05 level ( p ¼ 0.016). This implies the need
to check for multicollinearity.

4.2 Multicollinearity and autocorrelation tests (assessment of the validity of the model)
A regression analysis (Table IV) was performed on the dependent and independent variables
to check on the existence of the multi-co linearity and serial or autocorrelation problems.
The tolerance and variable inflation factor (VIF) tests revealed no harmful correlation.
According to Pallant (2013) and Field (2009), if the largest VIF is greater than 10, there is
cause for concern. However, the maximum VIF value in Table IV is 1.842 and Durbin
Watson value of 1.789. In addition, the tolerance is greater than 0.20 for the variables
(the smallest tolerance is 0.543). Therefore, this study is not subject to high-collinearity
problems. Overall, there are no linearity, multicollinearity and autocorrelation problems.

4.3 Main findings

There is a positive relationship between VDQ and AUDSCORE (t ¼ 0.030) and significant at
the 1 percent level ( p ¼ 0.010). The results indicate that firms with independent AC, with
financial expertise, prior experience and meeting frequently are likely to disclose quality
voluntary information. This finding is consistent with Salehi and Shirazi (2016) who found
that AC with finance expertise, independence and having regular meeting contribute to the
quality of financial disclosure.
There is a positive relationship between VDQ and AUDFSZ (t ¼ 1.366) and significant at
the 5 percent level ( p ¼ 0.017). This is consistent with Wang et al. (2008).
There is a negative relationship between VDQ and AUDFEE (t ¼ −0.267) but
insignificant at the 5 percent level ( p ¼ 0.790). The implication is that audit fee disclosure
does not increase disclosure quality.
There is a negative relationship between VDQ and TENURE (t ¼ −1.527) but
insignificant at the 5 percent level ( p ¼ 0.129). The implication is that effective AC and
auditor tenure do not increase disclosure quality.
There is a positive relationship between VDQ and ACSORE × AUDFSZ (t ¼ 0.521) and
significant at the 1 percent level ( p ¼ 0.006). Thus H1 is supported, hence accepted. This
result indicates that when there is an effective AC and a Big Four auditor, the likelihood of
corporate VDQ increases. Thus firms with greater financial expertise, independent and
active AC demand better auditor reputation to improve the quality of voluntary information
disclosure. This is consistent with the findings of Wang et al. (2008).
There is a negative relationship between VDQ and ACSORE × AUDFEE (t ¼ −1.740) but
insignificant at the 5 percent level ( p ¼ 0.461). Thus H2 is not accepted, hence rejected. The
implication is that effective AC and audit fee disclosure do not increase disclosure quality.
There is a negative relationship between VDQ and ACSORE × TENURE (t ¼ −0.728) but
insignificant at the 5 percent level ( p ¼ 0.468). Thus H3 is not accepted, hence rejected. The
implication is that effective AC and auditor tenure do not increase disclosure quality.
There is a negative relationship between VDQ and BDS (t ¼ −0.747) and significant at
the 5 percent level ( p ¼ 0.083). The implication of the result is that large board size tends to
decrease disclosure quality. This is inconsistent with Chakroun and Hussainey (2014) who
found a positive relationship between board size and disclosure quality.
 Correlations
ACSCORE QVD BODS LEV ROA AUDFSZ AUDFEE TENURE

ACSCORE Pearson correlation 1

Sig. (two-tailed)
QVD Pearson correlation −0.015 1
Sig. (two-tailed) 0.520
BODS Pearson correlation 0.198* −0.112 1
Sig. (two-tailed) 0.015 0.171
LEV Pearson correlation −0.111 −0.006 −0.104 1
Sig. (two-tailed) 0.175 0.449 0.205
ROA Pearson correlation 0.190* 0.146* 0.260** 0.212** 1
Sig. (two-tailed) 0.020 0.075 0.001 0.009
AUDFSZ Pearson correlation 0.016* 0.154* 0.216** 0.309** 0.114 1
Sig. (two-tailed) 0.039 0.060 0.008 0.000 0.167
AUDFEE Pearson correlation 0.077 0.006 −0.050 −0.134 0.183* 0.008 1
Sig. (two-tailed) 0.352 0.451 0.545 0.102 0.025 0.232
TENURE Pearson correlation 0.184* 0.143* 0.008 0.030 −0.094 0.024 −0.198* 1
Sig. (two-tailed) 0.024 0.080 0.190 0.140 0.253 0.277 0.015
Notes: *,**Correlations are significant at the 0.05 and 0.01 level (two-tailed), respectively
effectiveness

25
Effect of audit
committee

coefficient matrix
Table III.
Pearson correlation
AJEMS Unstandardized Collinearity
10,1 coefficients Standardized coefficients statistics
Variables B SE β T Sig. Tolerance VIF

(Constant) 0.515 0.037 13.790 0.000

ACSCORE 2.080E-05 0.001 0.003 0.030 0.010 0.883 1.132
BODS −0.004 0.002 −0.154 −0.747 0.083 0.891 1.123
26 LEV −0.011 0.008 −0.115 −1.291 0.199 0.850 1.176
ROA 0.001 0.001 0.216 2.402 0.018 0.870 1.149
AUDFSZ 0.017 0.013 0.123 1.366 0.017 0.907 1.103
Table IV. AUDFEE −0.003 0.012 −0.023 −0.267 0.790 0.751 1.332
Interaction between
TENURE −0.006 0.004 −0.134 −1.527 0.129 0.543 1.842
the effectiveness of
audit committee and ACSCORE × AUDFSZ 0.003 0.005 0.049 0.521 0.006 0.572 1.749
audit quality on ACSCORE × AUDFEE −0.009 0.012 −0.064 −0.740 0.461 0.938 1.066
increasing voluntary ACSCORE × TENURE −0.008 0.010 −0.065 −0.728 0.468 0.641 1.559
disclosure quality Notes: n ¼ 144. R2 ¼ 0.50; Adj. R2 ¼ 0.39; F-statistic (p-value) ¼ 1.549; Durbin Watson ¼ 1.789

There is a positive relationship between VDQ and ROA (t ¼ 2.402), and significant at the
5 percent level ( p ¼ 0.018). The implication is that profitable firms tend to disclose
high-quality voluntary information. This is inconsistent with the findings established in
Muhamad et al. (2009) and Camfferman and Cooke (2002) who found a negative relationship
between profitability and the level of corporate voluntary disclosure.

5. Conclusion
This paper examined the linkages between ACs’ effectiveness, audit quality and corporate
VDQ. Empirical evidence on the effect of AC effectiveness and audit quality on the quality of
corporate voluntary disclosure is scanty. Using a 144 firm-year sample of firms listed on the
Ghana Stock Exchange for the period, 2013–2016, the paper tried to fill the research gap.
After controlling for board size, leverage and profitability, the results from univariate
and multivariate analyses indicated that effective AC and audit firm size play
complimentary roles in ensuring quality voluntary information disclosure. Board size and
profitability were also found to influence the disclosure of quality voluntary information.
This study makes several important contributions. The study fills a gap in the extant
literature where little research has examined the relationship between effective AC and
audit quality on corporate VDQ. The findings are consistent with agency theory, suggesting
that effective AC and audit quality tend to increase corporate VDQ.
The results also have implication for managers and policy makers. The QVD show a
low-mean compliance level of 51.7 percent and ranges from a minimum of 30 percent to a
maximum value of 65 percent with a standard deviation of 5 percent. The implication of
the finding is that the listed firms in Ghana are not fully complying with IASB’s
Framework for the Preparation and Presentation of Financial Statements. To improve the
QVDs the Institute of Chartered Accountants, Ghana can carry out regular peer review of
the work of its members. Seminars/workshops can be organized for the members, as part
of the Continuous Professional Development programs, to remind them of the need to
comply fully with the requirements of the IFRSs. By doing so, members in practice
(auditors) can encourage companies that they audit to adhere to standard disclosure
practices. Accounting teachers should teach their students the importance of complying
with the IFRS’ disclosure requirements.
With regard to managers, findings from the study emphasize that, ACs that have
finance and accounting expertise, which meets regularly, cooperating with auditors from
the Big Four auditing firms can help increase VDQ. With respect to policy makers, the
results highlight that effective AC and audit quality enhance VDQ. Hence they should Effect of audit
encourage corporate boards to insist on ACs having people with finance and accounting committee
qualification, and meeting regularly with their external auditors to ensure disclosure of effectiveness
quality voluntary information.
Despite the contributions and the implications of the findings, there are some limitations
to this study. Whilst the independent and control variables included in the regression model
are all validated by prior research, there may exist other factors influencing corporate VDQ 27
that were not addressed by this study. Further researchers may consider other corporate
governance variables such as: AC gender, AC chair financial expertise and ownership
concentration, etc., in order to provide an in-depth explanation to determine the relationship
between AC effectiveness and audit quality on corporate VDQ.
Furthermore, the same methodology can be used by other researchers using data from
other emerging markets where there is lack of evidence, to measure the effect of AC
effectiveness and audit quality on corporate VDQ.

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Appendix. Operational measures utilized for the qualitative characteristics

(Adapted from Beest et al., 2009)

Relevance
• R1 The annual reports disclose forward-looking information
• R2 The annual reports disclose information in terms of business opportunities and risks
• R3 The company uses fair value as measurement basis
 • R4 The annual report provides feedback information on how various market events and Effect of audit
significant transactions affected the company? committee
Relevance total score (4) effectiveness
Faithful representation
• F1 The annual report explains the assumptions and estimates made clearly
•
31
F2 The annual report explains the choice of accounting principles clearly
• F3 The annual report highlights the positive and negative events in a balanced way when
discussing the annual results
• F4 The annual report includes an unqualified auditor’s report
• F5 The annual report extensively discloses information on corporate governance issues
Faithful representation total score (5)

Understandability
• U1 The annual report is a well organized
• U2 The notes to the balance sheet and the income statement are clear
• U3 Graphs and tables clarify the information presented
• U4 The use of language and technical jargon is easy to follow in the annual report
• U5 The annual report included a comprehensive glossary
Understandability total score (5)

Comparability
• C1 The notes to changes in accounting policies explain the implications of the change
• C2 The notes to revisions in accounting estimates and judgments explain the implications of
the revision
• C3 The company’s previous accounting period’s figures are adjusted for the effect of the
implementation of a change in accounting policy or revisions in accounting estimates.
• C4 The results of current accounting period are compared with results in previous accounting
periods
• C5 Information in the annual report is comparable to information provided by other organizations
• C6 The annual report presents financial index numbers and ratios
Comparability total score ¼ (6)

Corresponding author
Ben Kwame Agyei-Mensah can be contacted at: bamensah@solbridge.ac.kr

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