The Effect of Board of Directors and Audit Committee Characteristics on Financial Reporting Quality: Evidence from Consumer Non-Cyclicals Companies Listed on the Indonesia Stock Exchange, 2022–2025

Abstract

The research evaluates the effect of board of directors and audit committee characteristics on the quality of financial reporting in consumer non-cyclicals companies listed on the Indonesia Stock Exchange (IDX) during 2022–2025. The research is motivated by concerns regarding the quality of financial reporting and the potential for managerial opportunistic behavior through managerial earnings manipulation. Therefore, this study aims to empirically analyze whether board size, board gender diversity, and audit committee size influence the quality of financial reporting. A quantitative causal-comparative approach was employed using secondary data obtained from companies’ annual reports and financial statements. The sample was selected using purposive sampling, and panel data regression was applied to test the partial and simultaneous effects of the independent variables. Financial reporting quality was proxied by discretionary accruals measured using the Modified Jones Model. The the estimates suggest that board size has a negative and significant effect on discretionary accruals, suggesting that a larger board of directors is related to lower managerial earnings manipulation and, consequently, higher the quality of financial reporting. In contrast, board gender diversity has no significant effect on discretionary accruals. Audit committee size also does not have a significant effect at the 5% significance level. Overall, the findings indicate that board size plays a more significant role in improving the quality of financial reporting than board gender diversity and audit committee size.