The effect of board and audit committee effectiveness on internal control disclosure under different regulatory environments in South Asia

Abstract

Purpose The purpose of this paper is to investigate the internal control disclosure (ICDISC) practices in South Asia and compare those disclosure practices across enforced setting (India) versus comply or explain setting (Pakistan and Bangladesh). Further, whether the audit firm size moderates the relationship between ICDISC practices and board & audit committee effectiveness. Design/methodology/approach To achieve these objectives, a sample of 100 non-financial companies was selected from Pakistan and India for three years’ period (2013-2015), whereas 93 companies were selected from Bangladesh based on market capitalization. The ICDISC index has been used which is based on the COSO framework. Findings Results of univariate analysis show that public sector companies in South Asia tend to disclose significantly more internal control information as compared to private sector companies. In terms of enforcement variable, the results of Mann–Whitney test show that companies listed in enforced setting have disclosed significantly greater extent of overall as well as individual categories of ICDISC as compared to companies listed in comply or explain setting. Based on multivariate analysis results for overall sample, it was found that board and audit committee characteristics and ownership by government have positive significant effect on ICDISC except representation of female or foreigner on audit committee which was found negatively significant. In addition to this, listing on foreign stock exchange and enforcement effect emerged as significant variables to influence ICDISC. Finally, the results of additional analysis state that the role of board and audit committee for influencing ICDISC has been moderated by the external auditor size in South Asia. In addition, enforcement variable is highly positively significant for companies having non-big four audit firm. Research limitations/implications These results imply that enforcement variable acts as an important alternative external control mechanism when companies do not have big four audit firm as their external auditors. Originality/value This is very first study on ICDISC in South Asia which explores the effect of enforcement and governance on ICDISC practices of firms. It also contributes toward the literature that the regulation on reporting of internal control can be effective in developing country only if there is strong penalty for non-compliance by regulatory authorities.

The Impact of Audit Committee Characteristics on Corporate Biodiversity Disclosure: An Analysis of Japanese Firms

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Corporate Governance Configurations and Corporate Social Responsibility Disclosure: Qualitative Comparative Analysis of Audit Committee and Board characteristics

“…For instance, Said et al (2009) and Appuhami and Tashakor (2017) conclude that AC independence enhances CSR disclosure level. Ashfaq and Rui (2019) find that companies with independent AC chair would have a high CSR disclosure level. AC financial expert improves CSR performance (Shaukat, Qiu, & Trojanowski, 2016), and CSR disclosure level (Jizi et al, 2014).…”

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