STRENGTHENING FINANCIAL REPORTING INTEGRITY: A CONCEPTUAL PERSPECTIVE ON BOARD CHARACTERISTICS AND AUDIT QUALITY

Abstract

This conceptual paper aims to develop an integrated framework explaining how board diversity, the presence of foreign directors, board expertise, and audit quality influence earnings management. Grounded in the Resource-Based View theory, the paper develops a framework illustrating how these factors serve as strategic governance resources to mitigate earnings management and enhance financial reporting integrity. It proposes that a combination of a diverse and competent board of directors and high-quality audit oversight which can improve monitoring effectiveness and curb opportunistic management behavior, thereby, limiting opportunistic earnings management practices. The conceptual framework also delineates the interrelationships among these governance mechanisms and identifies research propositions for future empirical studies. This paper contributes to the corporate governance literature by integrating various governance mechanisms into a single conceptual model and offers practical insights to regulators, policymakers, corporate boards, and investors seeking to strengthen the integrity of financial reporting.