Audit committee characteristics and earnings quality of listed food and beverages firms in Nigeria

Abstract

The relationship between Audit Committee characteristics and earnings quality is imperative. The mix of opinions
makes the direction of their relationship ambiguous. This study investigated the relationship between Audit Committee
characteristics and earnings quality of listed food and beverages Firms in Nigeria. The study covered the period of six
years from 2007 to 2014. Data for the study were extracted from the Firms’ annual reports and accounts. After running
the OLS regression, a robustness test was conducted for validity of statistical inferences. The dependent variable was
generated using two steps regression in order to determine the discretionary accrual of the sample Firms. Multiple
regression was employed to run the data of the study using OLS. The results from the analysis revealed significant
association between audit committee characteristics and earnings quality of the Firms. While audit committee size and
committees’ financial expertise showed inverse relationship with earnings management, committee’s independence
and frequency of meetings are positively and significantly related to earnings management. In line with the findings, the
study recommended among others that listed food and beverages Firms in Nigeria should strictly comply with the
provision of Companies and Allied Matters Act (CAMA) and SEC Code of Corporate Governance on the issues
regarding Audit Committees of having six members, equally represented by three shareholders and three directors.
However, regulators such as SEC should increase the minimum number of Audit Committee members with financial
expertise and they should also have a statutory position on the maximum number of Audit Committees meetings,
which should not be greater than four meetings in a year as SEC code of corporate governance is silent on this. The
study is only limited to the domain of the listed Food and Beverages Firms in Nigeria. As such, our findings and
recommendations are only applicable to listed Food and Beverages Firms in Nigeria. For that, further research may be
needed to be conducted on the audit committee attributes in other sectors other than manufacturing like financial
institution