Audit committees and financial reporting quality

Abstract

Purpose The purpose of this paper is to examine the determinants of the volume of environmental disclosures and their quality, with particular focus on the role of audit committees (ACs) and the effects of the Smith report recommendations for the UK Corporate Governance Code. Design/methodology/approach Quantitative large sample analysis of UK FTSE350 companies for the period 2007-2011. Findings Firms with higher quality ACs make higher quality disclosures. Larger firms with block shareholders have greater volume of disclosures, whilst AC quality does not increase disclosure volume. Research limitations/implications Findings are based on evidence from single country and imply further international comparative research. Practical implications ACs mitigate the requirement for prescriptive legislation on narrative accounting disclosures relating to environmental issues. Originality/value The paper contributes to research that has examined the relationship between corporate governance mechanisms, specifically ACs, and the quality of financial reporting by considering voluntary narrative disclosures on environmental matters.