Audit committee characteristics and financial reporting comparability

Financial reporting comparability is one of the key qualitative characteristics that allows accounting information users to identify and understand similarities and differences in the financial performance of two firms. While prior studies manily focus on the role of accounting standards in the production of comparability, the role of economic agents and institutional incentives has been largely overlooked. To fill this gap, this study argues that a firm's audit committee, as an economic agent within the firm, is important in shaping financial reporting comparability because the audit committee oversees the financial reporting and disclosure process, and monitors the choice od accounting policies and principles. Given the oversight role of audit committees in the implementation and interpretation of accounting standards in financial reporting, the comparability of accounting information is expected to be determined by audit committee characteristics that capture its effectiveness. Consistent with this prediction, this study finds that a firm’s financial information tends to be more comparable to its industry peers when the firm’s audit committee is larger in size and has more members with financial and accounting expertise. The results also suggest that the presence of Big 4 auditors, and independent and larger boards of directors, moderate the positive association between audit committee characteristics and financial reporting comparability. The results enhance our understanding of the interaction between the audit committee, accounting standards and financial reporting outcomes.i