Received: 8 July 2020 Revised: 17 August 2020 Accepted: 31 August 2020

DOI: 10.1002/bse.2635

RESEARCH ARTICLE

Do audit committee attributes influence integrated reporting

quality? An agency theory viewpoint

Nicola Raimo | Filippo Vitolla | Arcangelo Marrone | Michele Rubino

Department of Economics and Management,

LUM Jean Monnet University, Casamassima, Abstract
Italy The limits of financial disclosure in meeting the investors' needs have led to the
Correspondence request for reporting frameworks capable of incorporating information of different
Filippo Vitolla, Department of Economics and nature. Integrated reporting (IR), which is the latest novelty in organisational
Management, LUM Jean Monnet University,
Casamassima, Italy. reporting practice, promises to bring together material financial and non-financial
Email: vitolla@lum.it information. IR has received considerable academic attention in recent years. How-
ever, little attention has been paid to the role of the audit committee in IR processes,
despite the influence that this body has on disclosure, thanks to its supervisory and
monitoring functions. This study bridges this gap by analysing the effect of the audit
committee attributes on integrated reporting quality (IRQ) from an agency theory
perspective. The regression analysis, conducted on a sample of 125 international
firms, demonstrated a positive effect of size, independence and meeting frequency
of the audit committee on IRQ and a non-significant effect of financial expertise.

KEYWORDS

agency theory, audit committee, disclosure, integrated reporting

1 | I N T RO D UC TI O N Cerbone, & Maroun, 2017). According to the IIRC (2013), an

This study examines the impact of audit committee attributes on inte-
grated reporting quality (IRQ). The academic literature on corporate
disclosure has raised several concerns about the usefulness of
traditional financial statements in enabling better decision-making
processes for investors (Amir & Lev, 1996; Francis & Schipper, 1999;
Gray, 2006; Adams & Simnett, 2011; Liu & Wang, 2012; Raimo, de
Nuccio, Giakoumelou, Petruzzella, & Vitolla, 2020). Traditional
financial disclosure provides incomplete information and has limits
connected mainly to the poor representation of intangibles (Adams &
Simnett, 2011) and historical orientation (Gray, 2006). These limits
have led to calls for a reporting framework capable of incorporating
financial and non-financial information (Ahmed Haji, 2015). From this
perspective, integrated reporting (IR), developed by the International
Integrated Reporting Council (IIRC), is becoming increasingly
important as a tool capable of including such information within a
single document (Vitolla, Raimo, & Rubino, 2019a). IR represents a
process that allows the representation of companies' value creation
processes over time through an annual integrated report (McNally,
integrated report is ‘a concise communication about how an organiza-
tion's strategy, governance, performance and prospects, in the context
of its external environment, lead to the creation of value over the
short, medium and long term’ (IIRC, 2013, p. 7). IR is primarily aimed
at financial capital providers and aims to improve the quality of the
information transmitted and make capital allocation processes more
efficient (de Villiers, Hsiao, & Maroun, 2017; IIRC, 2013). Further-
more, IR aims to ‘enhance accountability and stewardship for the
broad base of capitals (financial, manufactured, intellectual, human,
social and relationship, and natural) and promote understanding of
their interdependencies’ (IIRC, 2013, p. 2). Given the focus on the role
of intangibles (Vitolla, Raimo, & Rubino, 2019b, Vitolla, Raimo,
Marrone, & Rubino, 2020; Salvi, Vitolla, Giakoumelou, Raimo, &
Rubino, 2020; Salvi, Vitolla, Raimo, Rubino, & Petruzzella, 2020) and
the orientation towards the past, present and future
(Abeysekera, 2013), IR allows the limits of financial disclosure to be
overcome (Adams & Simnett, 2011).
As highlighted by the survey conducted by KPMG (2017), the ability
of IR to provide a holistic view of business management is pushing more

Bus Strat Env. 2020;1–13. wileyonlinelibrary.com/journal/bse © 2020 ERP Environment and John Wiley & Sons Ltd 1
2 RAIMO ET AL.
and more companies to publish integrated reports. Academics
(Comerio & Tettamanzi, 2019; Vitolla, Raimo, & De Nuccio, 2018) and
practitioners (EY, 2014; International Federation of Accountants, 2016)
are paying increasing attention to this reporting tool. In the academic
field, studies first analysed the ability of IR to promote sustainability
accounting (e.g., Flower, 2015; Thomson, 2015) or examined IR in terms
of objectives (e.g., Dumay, Bernardi, Guthrie, & Demartini, 2016;
Stacchezzini, Melloni, & Lai, 2016) and content (e.g., Eccles, Krzus, &
Solano, 2019). Other studies have examined IR drivers (e.g., Frias-
Aceituno, Rodriguez-Ariza, & Garcia-Sanchez, 2013; Frias-Aceituno,
Rodríguez-Ariza, & Garcia-Sánchez, 2014; Jensen & Berg, 2012) and the
effects of this reporting tool (e.g., Esch, Schnellbächer, & Wald, 2019;
García-Sánchez & Noguera-Gámez, 2017; Mervelskemper & vant. These elements are attributable to the absence of established
Streit, 2017; Vitolla & Raimo, 2018; Vitolla, Salvi, Raimo, Petruzzella, &
Rubino, 2020). An aspect increasingly examined in recent years by
academic contributions is represented by the IRQ (e.g., Barth, Cahan,
Chen, & Venter, 2017; Pavlopoulos, Magnis, & Iatridis, 2019; Pistoni,
Songini, & Bavagnoli, 2018). In relation to this aspect, previous studies
have analysed factors capable of influencing the quality of integrated
reports. In this regard, the characteristics of the board (Vitolla, Raimo, &
Rubino, 2020a), the characteristics of ownership structures (Raimo,
Vitolla, Marrone, & Rubino, 2020), national culture (Raimo, Zito, &
Caragnano, 2019; Vitolla, Raimo, Rubino, & Garzoni, 2019a) and external
pressures have emerged as drivers (Vitolla, Raimo, Rubino, &
Garzoni, 2019b). However, the role of the audit committee in the IR pro-
cesses and, specifically, the impact of the attributes of this body on the
IRQ are still little explored. In fact, the only two existing studies (Ahmed
Haji & Anifowose, 2016; Velte, 2018) focus on the level of compliance
with the IIRC framework and on the readability of integrated reports.
The analysis of the effects of the audit committee attributes on
the IRQ is particularly interesting considering the importance that this
body has in companies' disclosure processes. In fact, it is generally
considered as a main component of companies' corporate governance
structure, especially with regard to audit quality and supervision of
financial disclosure (Ika & Ghazali, 2012). From an agency theory per-
spective, the audit committee, through its oversight, control and moni-
toring functions in support of the shareholders (Ika & Ghazali, 2012),
could favour the dissemination of higher quality information. The role
of the audit committee and its oversight, control and monitoring func-
tions of the disclosure process are well recognised and have been con-
firmed over the years by many professional pronouncements and
corporate governance codes (Ika & Ghazali, 2012; Song &
Windram, 2004). In this regard, in relation to IR, King III (King, 2009) in
South Africa requires the audit committee function to control and
monitor IR processes. King IV (King, 2016) also points out the vital role
of an audit committee in ensuring the effectiveness of the firm's assur-
ance functions and services, with particular focus on combined assur-
ance arrangements, including external assurance service providers,
internal audit and the finance function, and the integrity of the annual
financial statements and other external reports issued by the firm.
According to Ahmed Haji (2015), the limited attention in the
academic literature on the role of the audit committee towards non-
financial disclosure and IR can be attributed to two main reasons.
The first is connected to the relative novelty of the inclusion of audit
committees within the corporate governance structure in developing
countries (Ika & Ghazali, 2012; Vanasco, 1994). The second reason is
connected to the general and widespread idea that the supervision
of the audit committee concerns only financial disclosure (Abdul
Rahman & Ali, 2006; Ika & Ghazali, 2012) and not non-financial
information. However, several recent contributions have shown that
the function of the audit committee also extends to non-financial
information (Ahmed Haji, 2015; Akhtaruddin & Haron, 2010; Li,
Mangena, & Pike, 2012) and to IR (Ahmed Haji & Anifowose, 2016;
Velte, 2018). In particular, in relation to IR, there are three main ele-
ments that make the role of the audit committee particularly rele-
practices (with respect to financial disclosure), the difficulty in rep-
resenting the characteristic interconnections of IR and finally, the
presence of qualitative information that makes the content of the
integrated reports more subjective. Despite this, the relationship
between the audit committee and IR practices is still poorly
explored.
This study aims to fill this important gap by analysing the effect
of four audit committee attributes (size, independence, meeting fre-
quency and financial expertise) on the IRQ from an agency theory
perspective.
The rest of this work is structured as follows. Section 2 intro-
duces the background of this study. Section 3 presents the theoretical
basis and develops the hypotheses. The research methodology is
introduced in Section 4. Sections 5 and 6 present and discuss the
results, respectively. Finally, concluding remarks are presented in
Section 7.
2 | B A CKG R O U N D
In recent years, the literature on the subject of IR, which is based on
the need to integrate financial information with information relating
to sustainability, governance and intangibles, has been increasingly
enriched (Abeysekera, 2013; Adams & Simnett, 2011; Arvidsson,
2011; Raimo, Vitolla, et al., 2020; Vitolla, Raimo, & Rubino, 2020b).
These studies are mainly based on the limits of traditional financial dis-
closure, which is no longer considered capable of meeting the needs
of investors and other stakeholders (Adams & Simnett, 2011; Amir &
Lev, 1996; Francis & Schipper, 1999; Gray, 2006) who are increasingly
interested in having a holistic view of business management that
allows for a detailed picture of the company's ability to create value.
In this regard, IR is considered a critical element for investor
decision making (Adams & Simnett, 2011; Knauer & Serafeim, 2014;
Serafeim, 2015).
The literature shows that corporate governance mechanisms
improve corporate disclosure processes (Abeysekera, 2010; Ahmed
Haji & Ghazali, 2013; Cerbioni & Parbonetti, 2007), and in recent
years, a growing body of empirical studies is examining how these
mechanisms improve IR practices (Ahmed Haji & Anifowose, 2016;
Alfiero, Cane, Doronzo, & Esposito, 2018; Frias-Aceituno et al., 2013;
RAIMO ET AL.
Gerwanski, Kordsachia, & Velte, 2019; Velte, 2018; Vitolla, Raimo, &
Rubino, 2020a). These studies focused mainly on aspects related to
the composition of the board of directors (Alfiero et al., 2018; Frias-
Aceituno et al., 2013; Gerwanski et al., 2019; Vitolla, Raimo, &
Rubino, 2020a), and little is known about the formation of audit com-
mittees in the governance structure and their effect on companies'
IR processes.
In fact, over the years, the role of the audit committee has been
studied in relation to financial disclosure, and the academic literature
has only recently extended attention to non-financial disclosure
and IR.
In relation to financial disclosure, the existence of an audit com-
mittee in the corporate governance structure has been reported to be
capable of ensuring timely and high-quality financial disclosure
(Abbott, Park, & Parker, 2000; Bedard, Chtourou, & Courteau, 2004;
Ika & Ghazali, 2012; Lary & Taylor, 2012).
In relation to non-financial disclosure, past studies have instead
examined different characteristics of the audit committee, obtaining
partly conflicting results. Analysing voluntary disclosure, Ho and
Wong (2001) found that the presence of an audit committee in the
corporate governance structure led to an increase in the level of
information disclosed by Hong Kong companies. Akhtaruddin and
Haron (2010) underlined the positive effect of the expertise and
independence of the audit committee on the voluntary disclosure
level of Malaysian companies. Madi, Ishak, and Manaf (2014) added
that the size, independence and multiple directorships of the audit
committee have a positive influence on the level of voluntary disclo-
sure. They also found that the frequency of meetings and the financial
expertise of the audit committee have no effect on the level of infor-
mation voluntarily disclosed. Othman, Ishak, Arif, and Aris (2014)
extended these results by suggesting that the tenure and multiple
directorships of the audit committee positively impact the level of vol-
untary ethics disclosure.
Analysing corporate social responsibility (CSR) disclosure, Said,
Zainuddin, and Haron (2009) found that the higher the proportion of
non-executive directors that sit on the audit committee, the greater
the extent of CSR disclosure will be. Khan, Muttakin, and
Siddiqui (2013) added that the presence of an audit committee has a
positive impact on CSR disclosure. In addition, Appuhami and
Tashakor (2017) analysed Australian firms and underlined the positive
effect of some audit committee characteristics such as size, indepen-
dence, frequency of meetings and gender diversity on the level of
CSR disclosure.
By analysing intellectual capital disclosure, Li et al. (2012) found
that the level of information disclosed is positively influenced by the
size of the audit committee and the number of annual meetings of this
body. In addition, they identified a negative association between intel-
lectual capital disclosure and audit committee directors' shareholding,
whereas they recorded a non-significant impact of the independence
and financial expertise of this body. In the same vein, Ahmed
Haji (2015) highlighted the positive influence of the size, indepen-
dence, financial expertise and frequency of meetings of the audit
committee on the level of information disclosed.
3
In relation to the IR, Velte (2018) found that the financial and
sustainability expertise of the audit committee has a positive effect on
the readability of integrated reports. Furthermore, he showed that the
combination of financial and sustainability expertise has an even
stronger effect. Ahmed Haji and Anifowose (2016) found that the
overall effectiveness of the audit committee function has a positive
effect on IR processes. Specifically, they highlighted that the authority
and number of audit committee meetings have a positive impact on
IR practices. In addition, they found no significant effect of the
financial expertise and independence of the audit committee on the
IR processes.
The literature review reveals that limited attention has been paid
to the role of the audit committee in the IR processes. The current
study is part of this body of literature and analyses the impact of audit
committee attributes on the IRQ.
3 | T H EO RY A N D H YP O TH E S E S
DE VE L OPME N T
Agency theory is one of the most widely used theoretical perspec-
tives to explain the relationship between corporate governance
mechanisms and disclosure (Ahmed Haji, 2015; Barako, Hancock, &
Izan, 2006; Donnelly & Mulcahy, 2008; Ika & Ghazali, 2012;
Frias-Aceituno et al., 2013; Vitolla, Raimo, Marrone, &
Rubino, 2020). Therefore, the relationship between audit committee
and disclosure has also often been analysed on the basis of agency
theory, proposed by Jensen and Meckling (1976) and supported by
Fama and Jensen (1983). According to agency theory, due to the
divergence of interests between shareholders (principals) and
managers (agents), the latter may not always act in the best
interests of shareholders by creating agency problems such as
suboptimal investment decisions and excess spending (Ika &
Ghazali, 2012). The possibility for managers to act contrary to the
interests of shareholders is connected to the presence of informa-
tion asymmetry between principals and agents (Barako et al., 2006;
Donnelly & Mulcahy, 2008). In this regard, disclosure represents a
tool capable of reducing the information asymmetry between share-
holders and managers (Healy & Palepu, 2001; Watson, Shrives, &
Marston, 2002). According to agency theory, the audit committee
represents a monitoring body that pursues the objective of
guaranteeing the veracity of disclosure, thus contributing to the
reduction of information asymmetry (Beasley, Carcello,
Hermanson, & Neal, 2009). The function of the audit committee is
in fact to protect the interests of shareholders through supervision
and monitoring activities in the areas of financial and non-financial
reporting, external auditing activity and internal control (Turley &
Zaman, 2004). These activities firstly concern an ex ante phase in
which the presence of the audit committee within the corporate
governance structure influences auditing processes and policies,
improving disclosure activities and promoting the dissemination of
higher quality information. In addition, the activities of the audit
committee concern ongoing control over the entire disclosure
4 RAIMO ET AL.
process, with particular reference to the collection, processing and
recognition of data and information. Lastly, in an ex post phase,
such activities trigger the start of a feedback mechanism aimed at
correcting imperfections in the representation of information, filling
information gaps and, consequently, improving the overall quality of
the integrated reports, not only in the short term but also in the
medium to long term.
Some attributes of the audit committee make the performance
of the aforementioned tasks of the disclosure processes more effec-
tive, promoting the dissemination of higher quality information within
the integrated reports. The single hypotheses relating to the effects
of the individual attributes of the audit committee on the IRQ are
developed below.
Economic-related theories, including agency theory, suggest that
larger groups can benefit from the ideas, experience and skills of
individual members, which in turn improve the group's control and
monitoring capacity (Cornett, McNutt, & Tehranian, 2009; Lipton &
Lorsch, 1992). From this perspective, the effectiveness of the audit
committee in its supervisory and monitoring functions is strictly
connected to the resources available in terms of human capital; in
other words, it depends on the number of members that make up
this body (Abbott, Parker, & Peters, 2004; Bedard et al., 2004;
DeZoort, Hermanson, Archambeault, & Reed, 2002). Although there
is no optimal audit committee size, regulatory requirements and pre-
vious studies suggest the inclusion of three to five members with a
predominance of independent members (Abbott et al., 2004;
Bronson, Carcello, Hollingsworth, & Neal, 2009; DeZoort
et al., 2002). According to Bedard et al. (2004), a larger audit com-
mittee is more likely to discover and resolve potential problems
related to the reporting process, as it is likely to have the necessary
diversity and strength of skills and opinions capable of improving
supervision and monitoring functions. This suggests that the size of
the audit committee represents a determining factor for companies
in the disclosure of high-quality corporate reports (Klein, 2002). The
complexity of the IR, which involves the collection of financial and
non-financial information and the representation of the interconnec-
tions existing between the different aspects of business manage-
ment (Vitolla, Raimo, & Rubino, 2020b, 2020c; Vitolla, Salvi, Raimo,
Petruzzella, & Rubino, 2020), requires important supervision and
monitoring. In this regard, a greater number of members within the
audit committee could favour the goodness of the process of gath-
ering and representing information in an integrated and quality way
by improving the supervisory and monitoring functions of this body.
Building on the preceding discussion, this study introduces the fol-
lowing hypothesis:
H1. IRQ is positively influenced by audit committee size.
The audit committee's independence is one of the main charac-
teristics capable of influencing its supervision and monitoring capacity
(Abbott et al., 2000; Bronson et al., 2009). The relevance of such inde-
pendence is emphasised not only in the academic sphere but also by
regulatory requirements (FRC, 2010; King, 2009). The idea that this
independence improves the effectiveness of this body derives from
the agency theory perspective, which considers independent mem-
bers to be the best controllers of managers' actions (Fama &
Jensen, 1983). In relation to disclosure processes, agency theory con-
siders audit committees with high levels of independence capable of
detecting and reducing fraudulent practices in the information collec-
tion and representation (Abbott et al., 2000; Bedard et al., 2004;
Bronson et al., 2009). Li et al. (2012) highlighted that the indepen-
dence of the audit committee improves the credibility and quality of
both financial and non-financial corporate disclosure. The ability of
independent members to perform supervisory and monitoring func-
tions more effectively derives from the absence of relations with
inside management (Carcello & Neal, 2003; Mangena & Pike, 2005).
As previously mentioned, the complexity of the IR, which involves the
collection of financial and non-financial information and the represen-
tation of the interconnections existing between the different aspects
of business management (Vitolla, Raimo, & Rubino, 2020b; Vitolla,
Raimo, Rubino, & Garzoni, 2020), requires important supervision and
monitoring activities. In this regard, a greater level of independence of
the audit committee, by improving the supervisory and monitoring
functions of this body, could favour the goodness of the process of
collecting and representing information in an integrated and quality
way. Building on the preceding discussion, this study introduces the
following hypothesis:
H2. IRQ is positively influenced by audit committee independence.
Existing literature has highlighted that the audit committee's
competences and the expertise of individual members increase its
effectiveness (DeZoort et al., 2002; Velte, 2018). The corporate
scandals of recent years have increased the attention regarding the
presence of financial or accounting experts within these bodies
(Ahmed Haji & Anifowose, 2016). The need to include members with
financial expertise within the audit committee is highlighted in a
number of regulations, such as the UK Corporate Governance Code
(FRC, 2010), which recommended the inclusion of members with a
good knowledge of the corporate financial contest and at least one
member with financial background and experience (Li et al., 2012).
The rationale behind the need to include financial experts is to
support other members in understanding auditor judgements and dis-
cern the substance of disagreements between external auditors and
managers (Mangena & Pike, 2005; Raghunandan & Rama, 2007). The
possession of financial expertise by the audit committee mitigates
internal control weaknesses (Krishnan, 2005; Zhang, Zhou, &
Zhou, 2007), reduces conflicts between managers and external
auditors and ensures positive reactions from capital markets (Ahmed
Haji & Anifowose, 2016). On the contrary, according to Knapp (1987),
the absence of financial or accounting expertise reduces the effective-
ness of this body and implies that the supervisory role is discounted
by the management and auditor (Ahmed Haji, 2015). With regard to
disclosure processes, the presence of members with financial
expertise ensures a higher quality of the information disseminated
(Abbott et al., 2004; Bedard et al., 2004; DeFond, Hann, & Hu, 2005;
RAIMO ET AL.
Kang, Kilgore, & Wright, 2011; Lary & Taylor, 2012; Sun, Wei, &
Xu, 2012). With reference to IR, it provides for the joint and inter-
connected inclusion of financial and non-financial information. In this
regard, the presence of financial experts within the audit committee
improves its supervisory and monitoring functions and creates a
favourable contest for transparency-oriented disclosure processes. In
fact, the mentality and skills of financial experts are also relevant for
the representation of non-financial information. Therefore, the
presence of financial experts could favour the goodness of the
process of collecting and representing information in an integrated
and quality way. Building on the preceding discussion, this study
introduces the following hypothesis:
H3. IRQ is positively influenced by audit committee financial
expertise.
The frequency of the meetings of the audit committee shows the
willingness of the members to fulfil their responsibilities and provides
indications on its effectiveness (Abbott et al., 2000; DeZoort
et al., 2002; Karamanou & Vafeas, 2005; Yin, Gao, Li, & Lv, 2012).
According to Karamanou and Vafeas (2005), audit committees that
meet most frequently have more time to effectively perform the
function of monitoring disclosure processes. According to Yang and
Krishnan (2005), for inactive audit committees, it could be complex to
detect accounting irregularities and unethical disclosure practices in
the company considering the limited time spent together and the
loose ties between the different members. In relation to the disclosure
process, audit committees that meet most frequently ensure a high
quality of the information provided (Abbott et al., 2000; Kang
et al., 2011). As previously mentioned, the complexity of the IR
requires important supervision and monitoring activities. In this
regard, a greater frequency of audit committee meetings, improving
the supervisory and monitoring functions of this body, could favour
the goodness of the process of collecting and representing informa-
tion in an integrated and quality way. Building on the preceding
discussion, this study introduces the following hypothesis:
H4. IRQ is positively influenced by audit committee meeting
frequency.
4 | R E S EA R C H M E T H O D O L O G Y
4.1 | Sample
The sample is composed of 125 international firms that published an
integrated report in 2017. The selection of the sample starts from the
analysis of the IIRC website. Specifically, it starts from the analysis of
the ‘Leading Practices’ and ‘<IR> Reporters’ sections of the IIRC
website. We chose to refer to this website to ensure that the inte-
grated reports have been prepared according to the IIRC require-
ments. We chose two sections of the website to ensure an adequate
balance for the sample. In fact, the ‘Leading Practices’
5
section contains integrated reports that represent best practices,
whereas the ‘<IR> Reporters’ section presents a list of organisations
that adopt IR and that provide integrated reports that do not repre-
sent best practices.
The complete list of companies presented in the two sections of
the IIRC website included 536 organisations. First, non-profit organi-
sations were excluded from the sample. Their corporate structure,
business models and governance mechanisms (including the audit
committee bodies) are completely different from for-profit compa-
nies, which cause issues in the empirical evidence obtained in terms
of comparability. Second, all companies for which the 2017 inte-
grated report was not available were excluded. Finally, all companies
for which financial and governance data relating to independent and
control variables were not available were also excluded. This process
led to the exclusion of 411 firms; the final sample is composed of
125 companies. The selected companies have their headquarters in
five different regions and 26 different countries and operate in nine
different sectors. A number of tests for normality were conducted.
The data are considered normal if the standard skewness is within
± 1.96 and standard kurtosis is between ± 3.0 (Haniffa &
Hudaib, 2006; Mustapha & Ahmad, 2011). The results of standard
tests of skewness and kurtosis indicate that there are no problems
with the normality assumption.
4.2 | Variables and model specification
The dependent variable is the IRQ. It represents the quality of the
information contained within the integrated reports and was mea-
sured using the scoreboard created by Pistoni et al. (2018). To mea-
sure the quality of integrated reports, this scoreboard considers four
different areas: background, assurance and reliability, content
and form.
Background area assesses the presence of an introduction that
contains information relating to the following issues: reasons behind
the choice of IR adoption, objectives pursued by the IR, manager in
charge of the IR process, recipients of the integrated report, title of
the document, consistency with generally applied disclosure standards
and commitment of the CEO. The presence of each of these elements
corresponds to the assignment of a score equal to 1; the absence pro-
vides for the assignment of a score of 0. Hence, the background area
can assume a score that varies from 0 to 7.
Assurance and reliability areas first assess whether an internal
audit and/or a third-party verification has been conducted and,
second, whether the firm has received awards and acknowledge-
ments for its integrated report. The presence of each of these
elements corresponds to the assignment of a score equal to 1; the
absence provides for the assignment of a score of 0. Hence, the
assurance and reliability area can assume a score that varies
from 0 to 3.
Content area examines the consistency of the integrated report
with the IIRC requirements with reference to the eight content
elements (organisational overview and external environment,
6 RAIMO ET AL.

governance, business model, risks and opportunities, strategy and

CIV
resource allocation, performance, outlook and basis of preparation

1
and presentation) and the two fundamental disclosure concepts (capi-

0.013
ESEN
tals and value creation process). Each of the 10 identified elements

1
can take a score ranging from 0 to 5. Hence, the content area can take
a score ranging from 0 to 50.

0.076
0.055
AGE
Form area assesses the readability and clarity, conciseness and

1
accessibility of the integrated report. Each of the three identified ele-
ments can take a score from 0 to 5. Hence, the form area can take a

0.067
0.045
0.025
SIZE
score that varies from 0 to 15.

1
The IRQ, which represents our dependent variable, is given by

PROF

0.065
0.658
0.045
0.025
the sum of the scores of the four areas. Therefore, it assumes a score

1
ranging from 0 to 75.
To increase the reliability of the data and mitigate the problems

CSRCOM
of subjectivity connected to the content analysis techniques, three

*
0.045
0.154
0.002
0.030
0.066
researchers identified and applied a specific detection procedure

1
(Krippendorff, 1980). This procedure involved a joint pilot test on five
integrated reports and, subsequently, a separate analysis of 10 other

0.061
0.002
0.048
0.076
0.054
0.022
BDIV
documents. A comparison of the results indicated a high reliability of

1
the data.

0.222**
0.204**
0.175**
**
The independent variables are audit committee size (ACSIZE),

0.199
0.023
0.046
0.083
audit committee independence (ACIND), audit committee financial BIND

1
expertise (ACEXP) and audit committee meeting frequency

0.266***

***
(ACMEET). ACSIZE is measured as the total number of members

*
BSIZE

0.163
0.165
0.055
0.331
0.098
0.022
0.125
within the audit committee (Ahmed Haji, 2015). ACIND is measured

1
as the proportion of independent members to the total number of the
audit committee members (Ahmed Haji, 2015). ACEXP is measured
ACMEET

0.287***
0.220**

*
through a dummy variable that assumes a score of 1 if at least one

0.103
0.023
0.004
0.174
0.034
0.052
0.041
member of the audit committee has educational background and
1

experience in finance (Ika & Ghazali, 2012). ACMEET is measured as

0.292***
ACEXP

0.189**

the total number of audit committee meetings held during the year

0.159*

0.170*
0.003

0.011
0.063

0.136
0.104
0.100

Significant at the 1% level. **Significant at the 5% level. *Significant at the 10% level.
(Ahmed Haji, 2015).
1

Some control variables were included to increase the goodness

***

0.403***

***

of the regression model. Specifically, the control variables were

ACIND

0.229*

0.190*
0.287
0.111

0.112
0.304
0.032
0.097
0.039
0.054
board size (BSIZE), board independence (BIND), board diversity
1

(BDIV), CSR committee (CSRCOM), firm profitability (PROF), firm

size (SIZE), firm age (AGE), environmental sensitivity (ESEN) and
0.253***
0.307***
***

***

0.200**
0.350
0.310

0.122
0.054
0.008

0.056
0.122
0.003

civil law (CIV). BSIZE is measured as the total number of directors

Means, standard deviations and correlations

ACSIZE

*
1

within the board. BIND is measured as the proportion of indepen-

0–165

dent directors to the total number of directors. BDIV is measured

as the proportion of female directors to the total number of direc-
0.414***
***

***

***

0.443***
***

***

***

tors. CSRCOM is a dummy variable that takes a score of 1 if there

0.368
0.124
0.359
0.424

0.288
0.277
0.086
0.340
0.022
0.066
0.145
IRQ

is a sustainability or CSR committee within the company and 0 oth-

1

erwise. PROF is measured as return on equity. SIZE is measured as

the natural logarithm of total assets. AGE is calculated as the num-
7.97
1.22

0.47
2.80
4.98

0.48

2.61

0.50
0.42
20.33

24.16
12.65

15.78

42.40
SD

ber of years since the establishment of the company. ESEN is a

dummy variable that assumes a score of 1 if the company operates
57.16

86.64

12.44
74.83
24.02

15.96
16.01
64.08
4.19

0.65
6.12

0.62

0.51
0.76

in a highly polluting sector and 0 otherwise. Finally, CIV is another

M

dummy variable that assumes a score of 1 if the company operates

Note: n = 125.

in a highly polluting sector and 0 otherwise.

CSRCOM
TABLE 1

ACMEET
Variable

To test the relationship between audit committee attributes and

ACSIZE

ACEXP
ACIND

BSIZE

PROF

ESEN
BIND
BDIV

SIZE
AGE
IRQ

IRQ, this study uses a regression model, which is reflected in the fol-
CIV

***

lowing equation:
RAIMO ET AL. 7

Model 1 : IRQ = β0 + β1 ACSIZE + β2 ACIND + β3 ACEXP TABLE 2 Variance inflation factor (VIF) analysis
+ β4 ACMEET + β5 BSIZE + β6 BIND + β7 BDIV Variable VIF
+ β8 CSRCOM + β9 PROF + β10 SIZE + β11 AGE ACSIZE 1.36
+ β12 ESEN + β13 CIV + ε: ACIND 1.44
ACEXP 1.29
ACMEET 1.31
BSIZE 1.37
5 | RESULTS
BIND 1.44

5.1 | Descriptive statistics and correlation analysis BDIV 1.10

CSRCOM 1.20
The descriptive statistics and correlation analysis are reported in PROF 1.09
Table 1. The IRQ, which represents the dependent variable, has an SIZE 1.19
average value of 57.16. Considering that the maximum achievable AGE 1.05
score is 75, it can be said that the companies analysed provide ESEN 1.05
fairly high-quality integrated reports. Regarding the independent
CIV 1.11
variables, the descriptive statistics show that on average, the audit
Mean VIF 1.23
committees of the companies analysed are composed of about four
members. In addition, on average, they are composed of about 86%
of independent members, and 65% have at least one member with
TABLE 3 Standard multiple regression results for IRQ
an educational background and experience in finance. Finally, on
average, the audit committees of the companies analysed meet Variable Coefficient SE p value Sign.
***
about six times per year. The values obtained are consistent with Cons 21.111 4.377 .000
***
those of previous studies (Ahmed Haji, 2015; Ahmed Haji & ACSIZE 1.494 0.504 .004
Anifowose, 2016). With regard to the control variables, the descrip- ACIND 0.064 0.031 .042 **

tive statistics show that on average, the boards of directors are ACEXP 1.116 1.258 .377
composed of about 12 members and have a high degree of inde- ACMEET 0.391 0.216 .073 *

pendence close to 75%. Furthermore, the selected companies have, *

BSIZE 0.223 0.124 .074
on average, a percentage of female directors equal to about 24%. **
BIND 0.052 0.026 .047
About half of the companies operate in a sector with a high envi- **
BDIV 0.107 0.043 .015
ronmental impact, and more than half are based in a civil law coun- *
CSRCOM 2.303 1.193 .056
try and have a CSR committee. Finally, the selected companies are
PROF 0.044 0.035 .207
on average about 64 years old and have an average profitability
**
close to 16%. SIZE 0.516 0.220 .021

With regard to correlation analysis, the results in Table 1 show AGE 0.006 0.012 .596

the absence of multicollinearity problems. In fact, the highest correla- ESEN 1.616 1.079 .137
**
tion coefficient was 0.443 for BIND and IRQ. This value is lower than CIV 3.187 1.302 .016
the maximum allowed thresholds, which, according to Farrar and N 125
Glauber (1967), are equal to ± 0.8 or ± 0.9. In support of this, a vari- Adj. R2 .353
ance inflation factor (VIF) analysis was conducted to exclude the pres- ***
Significant at the 1% level.
ence of multicollinearity problems. As shown in Table 2, the results of **
Significant at the 5% level.
*
the VIF analysis confirm the absence of multicollinearity problems as Significant at the 10% level.
the VIFs vary from a minimum value of 1.05 to a maximum value of
1.44. According to Myers (1990), there are no multicollinearity prob- dependent variable. The results support H1, H2 and H4, whereas H3
lems if all the VIFs are <10. is not supported.
Specifically, with reference to H1, the results show a positive and
highly significant relationship between ACSIZE and IRQ at p = .004.
5.2 | Basic analysis This result shows that firms with larger audit committees are more
likely to provide higher quality integrated reports.
A regression model is used to test the relationship between the audit In relation to H2, the results show a positive and significant rela-
committee attributes and the IRQ. The results are summarised in tionship between ACIND and IRQ at p = .042. This result suggests
Table 3. First, the adjusted R2 has a value of .353, which shows that that greater independence of the audit committee favours the dissem-
the regression model can explain about 35.3% of the variance in the ination of higher quality integrated reports.
8 RAIMO ET AL.

As previously mentioned, the results do not support H3. In fact, The findings of this new regression model are summarised in Table 4.
they show a non-significant relationship between ACEXP and IRQ. The adjusted R2 has a value of .355, which indicates that the regres-
This result shows that the educational background and experience in sion model can explain about 35.5% of the variance in the dependent
finance of the members of the audit committees have no significant variable. The findings highlight a positive influence of ACSIZE, ACIND
effect on the quality of the integrated reports provided. and ACMEET on the IRAL at p = .054, p = .007 and p = .066, respec-
Finally, with reference to H4, the results highlight a positive tively. Furthermore, they show a non-significant relationship between
and significant relationship between ACMEET and IRQ at p = .073. ACEXP and IRAL. The results obtained show that the audit committee
This result suggests that a greater number of annual meetings by attributes have similar effects on both the quality of the integrated
audit committees favour the dissemination of higher quality reports and the level of alignment with the <IR> framework.
integrated reports.
With regard to the control variables, the results show a positive
effect of board characteristics. In this regard, they highlight the posi- 6 | DISCUSSION
tive influence of BSIZE, BIND and BDIV on the IRQ at p = .074,
p = .047 and p = .015, respectively. They also stress that the presence The findings confirm, almost totally, the expectations relating to the
of a CSR or sustainability committee has a positive effect on the qual- influence of the audit committee attributes on the IRQ. Specifically,
ity of integrated reports. They show a positive effect of CSRCOM on the findings demonstrate that size, independence and meeting fre-
the IRQ at p = .056. Finally, they show a positive effect of firm size, quency favour the publication of higher quality integrated reports.
with SIZE having a positive effect on the IRQ at p = .021, and of the The findings also highlighted that the educational background and
legal system, with CIV having a positive effect on the IRQ at p = .016. experience in finance of the members of the audit committees have
no effect on the quality of the integrated reports. Furthermore, the
findings show that these attributes affect not only the quality of the
5.3 | Robustness analysis integrated reports but also the level of alignment with the <IR>
framework.
To increase the consistency of the results, we conducted a robustness The key to interpreting the results is the agency theory. Supervi-
analysis using a different dependent variable, represented by the level sion and monitoring by the audit committee in fact allows the veracity
of alignment of the integrated reports with the <IR> framework of the disclosure to be improved and the information asymmetry
(IRAL). The goal is to examine the role of the audit committee between shareholders and managers to be reduced. In this regard,
attributes on the level of alignment of the integrated reports with the some attributes of this body make the supervision and monitoring
IIRC requirements. functions of the disclosure processes more effective and improve the
We used the scoreboard devised by Marrone and Oliva (2019) to quality of the reports provided by the company.
measure the level of alignment of the integrated reports with the
TABLE 4 Standard multiple regression results for IRAL
<IR> framework. This scoreboard first examines the presence within
the integrated reports of information related to the eight content ele- Variable Coefficient SE p value Sign.
***
ments (organisational overview and external environment, gover- Cons 7.909 1.793 .000
*
nance, business model, risks and opportunities, strategy and resource ACSIZE 0.402 0.206 .054
***
allocation, performance, outlook and basis of preparation and presen- ACIND 0.035 0.012 .007
tation) and the two fundamental disclosure concepts (capitals and ACEXP 0.004 0.515 .993
value creation process). Second, for each of the 10 elements identi- ACMEET 0.164 0.088 .066 *

fied, it examines the presence of qualitative, quantitative non- BSIZE 0.109 0.050 .033 **

monetary and monetary information. The adopted scoreboard assigns **

BIND 0.016 0.010 .031
a score of 0 in the case of absence of the single element, a score of ***
BDIV 0.052 0.017 .004
1 if only qualitative information is present, a score of 2 in the pres- *
CSRCOM 0.632 0.489 .098
ence of qualitative and quantitative non-monetary information and a
PROF 0.020 0.014 .150
score of 3 in case of the presence of all three different types of infor-
**
SIZE 0.201 0.090 .028
mation. Each element can assume a score ranging from 0 to 3, and
each integrated report can assume a score ranging from 0 to 30. AGE 0.004 0.005 .386

The new analysis model proposed in this study is reflected in the ESEN 0.481 0.442 .278
***
following equation: CIV 1.789 0.533 .001
N 125
Model 2 : IRAL = β0 + β1 ACSIZE + β2 ACIND + β3 ACEXP
2
Adj. R .355
+ β4 ACMEET + β5 BSIZE + β6 BIND
***
+ β7 BDIV + β8 CSRCOM + β9 PROF Significant at the 1% level.
**
Significant at the 5% level.
+ β10 SIZE + β11 AGE + β12 ESEN + β13 CIV + ε: *
Significant at the 10% level.
RAIMO ET AL.
The results show that the size of the audit committee allows an
increase in the quality of the integrated reports provided by the com-
pany. The presence of a greater number of members within the audit
committee ensures the presence of greater resources in terms of
human capital and increases the probability that this body has differ-
ent perspectives, opinions and skills. These circumstances have a ben-
eficial effect on the ability of the audit committee to supervise and
monitor the processes of collection and representation of information,
thus leading to a higher quality of integrated reports provided by the
company. The results obtained regarding the impact of the audit com-
mittee size on the IRQ extend those obtained by Madi et al. (2014) in
relation to voluntary disclosure, by Appuhami and Tashakor (2017) in
relation to CSR disclosure and by Li et al. (2012) and Ahmed
Haji (2015) in relation to intellectual capital disclosure.
Second, the results indicate that the independence of the audit
committee allows an increase in the quality of the integrated reports
provided by the company. Independent members have no relationship
with inside management and therefore play their role with greater
objectivity. In light of this, they are more capable of detecting and
reducing incorrect and unethical practices and, in general, better per-
form their function of supervising and monitoring the information col-
lection and representation processes. Therefore, the presence of a
large number of independent members ensures that the entire audit
committee is more effective, resulting in a higher quality of integrated
reports. The results obtained regarding the impact of the audit com-
mittee independence on the IRQ extend those obtained by
Akhtaruddin and Haron (2010) and Madi et al. (2014) in relation to
voluntary disclosure, by Said et al. (2009) and Appuhami and
Tashakor (2017) in relation to CSR disclosure and by Ahmed
Haji (2015) in relation to intellectual capital disclosure.
In addition, the results show that the level of activity of the audit
committee increases the quality of the integrated reports provided by
the company. A greater number of annual meetings improves the
audit committee's ability to supervise and monitor the information
collection and representation processes, resulting in a higher quality
of integrated reports. The results obtained regarding the impact of the
frequency of audit committee meetings on the IRQ extend those
obtained by Appuhami and Tashakor (2017) in relation to CSR disclo-
sure and by Li et al. (2012) and Ahmed Haji (2015) in relation to intel-
lectual capital disclosure.
Finally, surprisingly, the results show that the educational back-
ground and experience in finance of the audit committee members do
not influence the quality of the integrated reports provided by the
companies. It is therefore possible that financial expertise is relevant
only for financial disclosure and that it does not have significant
effects on a document that mainly contains non-financial information.
In fact, among the six capitals provided for by the IIRC framework,
only one concerns the financial aspects, whereas the other five refer
to non-financial aspects of business management.
Overall, the results obtained confirm expectations regarding the
role of the audit committee as a mechanism capable of improving the
IR processes of companies. In fact, three different characteristics of
this body favour the dissemination of higher quality integrated reports
9
by companies and allow the reduction of information asymmetry
between shareholders and managers.
7 | C O N CL U S I O N S
This study analysed the role of the audit committee in IR processes.
Specifically, on the basis of agency theory, it examined the effect of
size, independence, financial expertise and meeting frequency of the
audit committee on the IRQ. Using a sample of 125 international
firms, the number of members, the percentage of independent mem-
bers and the annual activity level of the audit committee were shown
to have a positive effect on the IRQ. On the contrary, this study
highlighted that the educational background and experience in finance
of the audit committee members do not affect the IRQ. In addition, a
robustness test was used to test the effects of the audit committee
attributes on the level of alignment of the integrated reports with the
<IR> framework, obtaining similar findings. This study has highlighted
how some attributes of the audit committee represent elements capa-
ble of favouring corporate transparency, promoting the dissemination
of higher quality information and mitigating the information asymme-
try between shareholders and managers.
This study enriches the existing literature in different ways. First,
it extends the field of application of agency theory, framing the rela-
tionship between audit committees and IR from an agency theory per-
spective. In addition, this study stimulates reflections about the
potential implications of the different attributes of the audit commit-
tee on business management, the level of transparency of the com-
pany and the information asymmetry existing between ownership and
management. Finally, this study enriches the literature relating to the
determinants of IR, showing how some attributes of the audit commit-
tee represent factors capable of increasing the quality of the inte-
grated reports.
The results obtained offer important implications for firms. In fact,
they provide evidence of the benefits in terms of corporate transpar-
ency related to the composition of the audit committee. Companies
should redesign the audit committee in ways that encourage virtuous
behaviour in relation to disclosure processes. Considering that the
availability of additional human resources and individual skills and
experience increases the supervision and monitoring capacity of this
body and encourages the dissemination of higher quality integrated
reports, companies should compose larger audit committees. In addi-
tion, companies should prefer the inclusion of independent members
as their presence within the audit committee increases the efficiency
of this body in the supervision and monitoring functions and allows
the dissemination of higher quality integrated reports. Furthermore,
considering that a high level of activity improves the supervision and
monitoring functions of the audit committee and allows an increase in
the quality of the information disclosed within the integrated reports,
companies should increase the number of audit committee meetings.
The findings of this study have important implications for
policymakers. Policymakers should encourage the creation of larger
audit committees and audit committees with a greater percentage of
10
independent members through appropriate regulations. In addition,
they should set a minimum number of annual audit committee meet-
ings. These regulations, aimed at increasing the effectiveness of the
supervisory and monitoring functions of the audit committees, would
favour corporate transparency and improve the quality of the inte-
grated reports. In light of the non-significant effect of financial exper-
tise on IR, policymakers should go beyond mere financial skills and
require that there are members within the audit committees with a
range of relevant expertise, including legal, governance, technology
and leadership.
This study has some limitations. Firstly, it is based on a cross
section, and secondly, because of the limited size of the sample,
which does not allow a breakdown into subsamples, it does not
take into account the different regulations regarding the composi-
tion of the audit committee between the different countries. How-
ever, these limitations may offer ideas for future studies. Future
research should develop different quality measures and conduct
longitudinal analyses that allow a better understanding of the rela-
tionship between audit committee attributes and IRQ. By increasing
the number of observations, future research will be able to examine
the relationship between audit committee attributes and IRQ taking
into account the differences between the audit committee regula-
tions of different countries. Finally, future studies will examine the
role of audit committee attributes in other types of non-financial
disclosure, such as human capital and environmental, social and
governance (ESG) disclosure.
ORCID
Nicola Raimo https://orcid.org/0000-0003-1512-4906
Filippo Vitolla https://orcid.org/0000-0001-9887-4897
Michele Rubino https://orcid.org/0000-0001-7909-545X
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How to cite this article: Raimo N, Vitolla F, Marrone A,
Rubino M. Do audit committee attributes influence integrated
reporting quality? An agency theory viewpoint. Bus Strat Env.
2020;1–13. https://doi.org/10.1002/bse.2635