Sustainability reporting and audit committee attributes: Evidence from banks in Indonesia

Main Article Content

Inten Meutia
Zulnaidi Yaacob
Shelly F. Kartasari

Abstract

This paper examined the effects of audit committee attributes on the sustainability reporting (SR) of commercial banks in Indonesia. This study conducted a cross-sectional and time-series analysis using a sample of 74 commercial banks from 2015 to 2019. This study investigated the audit committee attributes, including financial expertise, size, independence, and meeting frequency. The model under study was underpinned by the theory of legitimacy, stakeholders, and agency. The results showed that the financial expertise of audit committee had an inverse relationship with SR disclosure. Meanwhile, there was a positive relationship between committee independence, bank size, bank age, and type of auditor with SR disclosure. These findings imply that the banks should further focus on the audit committee’s attributes as an effective measure to produce quality SR disclosure. In addition, non-financial expertise, especially in the field of sustainability, is a skill that the audit committee needs to have. 

Article Details

How to Cite
Inten Meutia, Zulnaidi Yaacob, & Shelly F. Kartasari. (2023). Sustainability reporting and audit committee attributes: Evidence from banks in Indonesia. Asian Academy of Management Journal, 28(2), 309–332. https://doi.org/10.21315/aamj2023.28.2.11
Section
Original Articles

References

Abdur Rouf. (2011). Corporate characteristics, governance attributes and the extent of voluntary disclosure in Bangladesh. African Journal of Business Management, 5(19), 7836–7845. https://doi.org/10.5897/ajbm10.1180

Adel, C., Hussain, M. M., Mohamed, E. K. A., & Asuony, M. A. K. (2019). Is corporate governance relevant to the quality of corporate social responsibility disclosure in large European companies? International Journal of Accounting and Information Management, 27(2), 301–332. https://doi.org/10.1108/IJAIM-10-2017-0118

Adegboye, A., Ojeka, S., Alabi, O., Alo, U., & Aina, A. (2020). Audit committee characteristics and sustainability performance in Nigerian listed banks. Business: Theory and Practice, 21(2), 469–476. https://doi.org/10.3846/btp.2020.10463

Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. Journal of Law and Economics, 48(2), 371–486. https://doi.org/10.1086/430808

Akhtaruddin, M. & Hasnah, H. (2010). Board ownership, audit committees’ effectiveness and corporate voluntary disclosures. Asian Review of Accounting, 18(1), 68–82. http://doi.org/10.1108/13217341011089649

Allegrini, M., & Greco, G. (2011). Corporate boards, audit committees and voluntary disclosure: evidence from Italian listed companies. Journal of Management and Governance, 15(3), 1–30. http://doi.org/10.1007/s10997-011-9168-3

Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: evidence from Jordan. Accounting and Finance Research, 7(2), 48–60. https://doi.org/10.5430/ afr.v7n2p48

Alzeban, A., & Sawan, N. (2015). The impact of audit committee characteristics on the implementation of internal audit recommendations. Journal of International Accounting, Auditing and Taxation, 24, 61–71. https://doi.org/10.1016/j.intaccaudtax.2015.02.005

Appuhami, R., & Tashakor, S. (2017). The impact of audit committee characteristics on CSR disclosure: An analysis of Australian firms. Australian Accounting Review, 27(4), 400–420. https://doi.org/10.1111/auar.12170

Badolato, P. G., Donelson, D. C., & Ege, M. (2014). Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics, 58(2–3), 208–230. https://doi.org/10.1016/j.jacceco.2014.08.006

Barros, C. P., Boubaker, S., & Hamrouni, A. (2013). Corporate governance and voluntary disclosure in France. Journal of Applied Business Research, 29(2), 561–578. https://doi.org/10.19030 /jabr.v29i2.7657

Be ’dard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. AUDITING: A Journal of Practice and Theory, 23(2), 13–35. https://doi.org/10.2308/aud.2004.23.2.13

Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2009). The audit committee oversight process. Contemporary Accounting Research, 26(1), 65–122. https://doi.org/10.1506/car.26.1.3

Bédard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: Can audit committees deliver? International Journal of Auditing, 14(2), 174–210. https://doi.org/10.1111/j.1099-1123.2009.00413.x

Bilal, Chen, S., & Komal, B. (2018). Audit committee financial expertise and earnings quality: A meta-analysis. Journal of Business Research, 84, 253–270. https://doi.org/10.1016/j.jbusres.2017.11.048

Branco, M. C., & Rodrigues, L. L. (2006). Communication of corporate social responsibility by Portuguese banks: A legitimacy theory perspective. Corporate Communications, 11(3), 232–248. https://doi.org/10.1108/13563280610680821

Bravo, F., & Alcaide-Ruiz, M. D. (2019). The disclosure of financial forward- looking information: Does the financial expertise of female directors make a difference? Gender in Management, 34(2), 140–156. https://doi.org/10.1108/GM-09-2018-0120

Buallay, A., & Al-Ajmi, J. (2019). The role of audit committee attributes in corporate sustainability reporting. Journal of Applied Accounting Research, 21(2), 249–264. https://doi.org/10.1108/JAAR-06-2018-0085

Burritt, R. L., & Schaltegger, S. (2010). Sustainability accounting and reporting: Fad or trend? Accounting, Auditing and Accountability Journal, 23(7), 829–846. https://doi.org/10.1108/0951357101 1080144

Chen, J. J., & Zhang, H. (2014). The impact of the corporate governance code on earnings management - evidence from Chinese listed companies. European Financial Management, 20(3), 596–632. https://doi.org/10.1111/j.1468-036X.2012.00648.x

Chen, R. C. Y., Hung, S. W., & Lee, C. H. (2017). Does corporate value affect the relationship between Corporate Social Responsibility and stock returns? Journal of Sustainable Finance and Investment, 7(2), 188–196. https://doi.org/10.1080/20430795. 2016.1272947

Cohen, J. R., Hoitash, U., Krishnamoorthy, G., & Wright, A. M. (2014). The effect of audit committee industry expertise on monitoring the financial reporting process. The Accounting Review, 89(1), 243–273. https://doi.org/10.2308/accr-50585

Crifo, P., Escrig-Olmedo, E., & Mottis, N. (2019). Corporate governance as a key driver of corporate sustainability in France: The role of board members and investor relations. Journal of Business Ethics, 159(4), 1127–1146. https://doi.org/10.1007/s10551-018-3866-6

D’Aquila, J. M. (2018). CPA Journal 2000. Retrieved from https://www.cpajournal.com/2018/07/30/the-current-state-of-sustainability-reporting/

Dhaliwal, D., Naiker, V., & Navissi, F. (2010). The association between accruals quality and the characteristics of accounting experts and mix of expertise on audit committees. Contemporary Accounting Research, 27(3), 787–827. https://doi. org/10.1111/j.1911-3846.2010.01027.x

Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: Evidence from Thailand. Research in International Business and Finance, 42, 689–709. https://doi.org/10.1016/j.ribaf.2017.07.011

Dissanayake, D., Tilt, C., & Qian, W. (2019). Factors influencing sustainability reporting by Sri Lankan companies. Pacific Accounting Review, 31(1), 84–109. https://doi.org/10.1108/PAR-10-2017-0085

Erin, O., Adegboye, A., & Bamigboye, O. A. (2021). Corporate governance and sustainability reporting quality: evidence from Nigeria. Sustainability Accounting, Management and Policy Journal, 13(3), 680–707. https://doi.org/10.1108/ SAMPJ-06-2020-0185

Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288–307. http://dx.doi.org/10.1086/260866

Fama, E .F, & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325. http://dx.doi.org/10.1086/467037

Gamerschlag, R., Möller, K., & Verbeeten, F. (2011). Determinants of voluntary CSR disclosure: Empirical evidence from Germany. Review of Managerial Science, 5(2–3), 233–262. https://doi.org/10.1007/s11846-010-0052-3

Gangi, F., Mustilli, M., & Varrone, N. (2019). The impact of corporate social responsibility (CSR) knowledge on corporate financial performance: Evidence from the European banking industry. Journal of Knowledge Management, 23(1), 110–134. https://doi.org/10.1108/JKM-04-2018-0267

Gaynor, L. M., Kelton, A. S., Mercer, M., & Yohn, T. L. (2016). Understanding the relation between financial reporting quality and audit quality. Auditing, 35(4), 1–22. https://doi.org/10.2308/ajpt-51453

Georgiou, O., & Jack, L. (2011). In pursuit of legitimacy: A history behind fair value accounting. British Accounting Review, 43(1), 311–323. https://doi.org/10.1016/j.bar.2011.08.001

Gibson, K. (2012). Stakeholders and sustainability: An evolving theory. Journal of Business Ethics, 109, 15–25. https://doi.org/10.1007/s10551-012-1376-5

Global Reporting Initiative. (2016). GRI 101: foundation 2016. https://www.globalreporting.org/standards/media/1036/gri-101-foundation-2016.pdf

Gujarati, D. N. (2006). Econometria Básica. Basic Econometrics. McGraw Hill.

Hammami, A., & Hendijani Zadeh, M. (2019). Audit quality, media coverage, environmental, social, and governance disclosure and firm investment efficiency: Evidence from Canada. International Journal of Accounting and Information Management, 29(1), 43–66. https://doi.org/ 10.1108/IJAIM-03-2019-0041

Hassan, A., & Syafri Harahap, S. (2010). Exploring corporate social responsibility disclosure: the case of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 203–277. https://doi.org/10.1108/17538391011072417

Hoitash, U., Hoitash, R., & Bedard, J. C. (2009). Corporate governance and internal control over financial reporting: a comparison of regulatory regimes. The Accounting Review, 84(3), 839–867. https://doi.org/10.2308/accr.2009.84.3.839

Hussainey, K. (2009). The impact of audit quality on earnings predictability. Managerial Auditing Journal, 24(4), 340–351. https://doi.org/10.1108/02686900910948189

Inaam, Z., & Khamoussi, H. (2016). Audit committee effectiveness, audit quality and earnings management: A meta-analysis. International Journal of Law and Management, 58(2), 179–196. https://doi.org/10.1108/IJLMA-01-2015-0006

Ji Yu, J., Yang, X. & Zhang (2016). The effects of the existence and financial expertise of audit committees on ‘firms’ controversial activities evidence from IPOs. Journal of Forensic and Investigative Accounting, 8(3), 400–427. http://web.nacva.com/JFIA/Issues/JFIA-2016-No3-2.pdf

Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601–615. https://doi.org/10.1007/s10551- 013-1929-2

Kamarudin, K. A., Wan Ismail, W. A., & Samsuddin, M. E. (2012). The influence of CEO duality on the relationship between audit committee independence and earnings quality. Procedia-Social and Behavioral Sciences, 65, 919–924. https://doi.org/10.1016/j.sbspro. 2012.11.220

Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453–486. https://doi.org/10.1111/j.1475-679X.2005.00177.x

Kumar, K., & Prakash, A. (2019). Examination of sustainability reporting practices in Indian banking sector. Asian Journal of Sustainability and Social Responsibility, 4(1), 2. https://doi.org/10.1186/s41180-018-0022-2

Larrinaga-Gonzalez, C. (2007). Sustainability reporting. In Sustainability Accounting and Accountability, 150–167. Routledge. https://doi.org/10.4324/NOE0415384889.ch8

Lary, A. M., & Taylor, D. W. (2012). Governance characteristics and role effectiveness of audit committees. Managerial Auditing Journal, 27(4), 336–354. https://doi.org/10.1108/02686901211217969

Laskar, N., & Gopal Maji, S. (2018). Disclosure of corporate sustainability performance and firm performance in Asia. Asian Review of Accounting, 26(4), 414–443. https://doi.org/10.1108/ARA-02-2017-0029

Leipziger, D. (2015). The OECD principles of corporate governance. In The Corporate Responsibility Code Book: Third Edition. 572. https://doi.org/10.9774/gleaf.978178353 0670_21

Li, J., Mangena, M., & Pike, R. (2012). The effect of audit committee characteristics on intellectual capital disclosure. British Accounting Review, 44(2), 98–110. https://doi.org/10.1016/j.bar.2012.03.003

Li, J., Pike, R., & Haniffa, R. (2008). Intellectual capital disclosure and corporate governance structure in UK firms. Accounting and Business Research, 38(2), 137–159. https://doi.org/10.1080/00014788.2008.9663326

Lipton, M., & Lorsch, J. W.(1992). A modest proposal for improved corporate governance. The Business Lawyer, 48(1), 59–77. https://www.jstor.org/stable/40687360

Lopes, P. T., & Rodrigues, L. L. (2007). Accounting for financial instruments: An analysis of the determinants of disclosure in the Portuguese stock exchange. International Journal of Accounting, 42(1), 25–56. https://doi.org/10.1016/j.intacc.2006.12.002

Madi, H. K., Ishak, Z., & Manaf, N. A. A. (2014). The impact of audit committee characteristics on corporate voluntary disclosure. Procedia - Social and Behavioral Sciences, 164, 486–492. https://doi.org/10.1016/j.sbspro.2014.11.106

Mangena, M., & Pike, R. (2005). The effect of audit committee shareholding, financial expertise and size on interim financial disclosures. Accounting and Business Research, 35(4), 327–349. https://doi.org/10.1080/00014788.2005.9729998

Meutia, I., Yaacob, Z., & F. Kartasari, S. (2021). Sustainability reporting: An overview of the recent development. Accounting and Financial Control, 3(1), 23–39. https://doi.org/10.21511/afc.03(1).2020.03

Milne, M. J., & Gray, R. (2013). W(h)ither ecology? The triple bottom line, the global reporting initiative, and corporate sustainability reporting. Journal of Business Ethics, 118(1), 13–29. https://doi.org/10.1007/s10551-012-1543-8

Mohammadi, S., Saeidi, H., & Naghshbandi, N. (2020). The impact of board and audit committee characteristics on corporate social responsibility: Evidence from the Iranian stock exchange. International Journal of Productivity and Performance Management, ahead-of-print. https://doi.org/10.1108/IJPPM-10-2019-0506

Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147–163. https://doi.org/10.1108/13217340710823369

Musallam, S. R. M. (2018). The direct and indirect effect of the existence of risk management on the relationship between audit committee and corporate social responsibility disclosure. Benchmarking An International Journal, 25(9), 4125–4138. https://doi.org/10.1108/BIJ-03-2018-0050

Neifar, S., & Jarboui, A. (2018). Corporate governance and operational risk voluntary disclosure: Evidence from Islamic banks. Research in International Business and Finance, 46, 43–56. https://doi.org/10.1016/j.ribaf.2017.09.006

Omran, M. A., & Ramdhony, D. (2015). Theoretical perspectives on corporate social responsibility disclosure: A critical review. International Journal of Accounting and Financial Reporting, 5(2), 38. https://doi.org/10.5296/ijafr.v5i2.8035

Orazalin, N., & Mahmood, M. (2019). Determinants of GRI-based sustainability reporting: Evidence from an emerging economy. Journal of Accounting in Emerging Economies, 10(1), 140–164. https://doi.org/10.1108/JAEE-12-2018-0137

Othman, R., Ishak, I. F., Arif, S. M. M., & Aris, N. A. (2014). Influence of audit committee characteristics on voluntary ethics disclosure. Procedia - Social and Behavioral Sciences, 145, 330–342. https://doi.org/10.1016/j.sbspro.2014.06.042

Otoritas Jasa Keuangan. (2014). Roadmap for sustainable finance in Indonesia 2015– 2019. Otoritas Jasa Keuangan, 37(8), 1–37. https://ojk.go.id/id/Documents/Pages/Keuangan-Berkelanjutan/roadmap keuangan berkelanjutan.pdf

Pérez, A., & Bosque, I. R. del. (2014). Customer CSR expectations in the banking industry. International Journal of Bank Marketing, 32(3), 1–49. https://doi.org/10.1108/IJBM-09-2013-0095

Persons, O. S. (2009). Audit committee characteristics and earlier voluntary ethics disclosure among fraud and no-fraud firms. International Journal of Disclosure and Governance, 6(4), 284–297. https://doi.org/10.1057/jdg.2008.29

Qiu, Y., Shaukat, A., & Tharyan, R. (2016). Environmental and social disclosures: Link with corporate financial performance. The British Accounting Review, 48(1), 102–116. https://doi.org/10.1016/j.bar.2014.10.007

Rahman, R. A., & Ali, F. H. M. (2016). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial Auditing Journal, 21(7), 783–804. https://doi.org/10.1108/02686900610680549

Raimo, N., Vitolla, F., Marrone, A., & Rubino, M. (2021). Do audit committee attributes influence integrated reporting quality? An agency theory viewpoint. Business Strategy and the Environment, 30(1), 522–534. https://doi.org/10.1002/bse.2635

Rainsbury, E. A., Bradbury, M., & Cahan, S. F. (2009). The impact of audit committee quality on financial reporting quality and audit fees. Journal of Contemporary Accounting and Economics, 5(1), 20–33. https://doi.org/10.1016/j.jcae.2009.03.002

Rochmah Ika, S., & Mohd Ghazali, N. A. (2012). Audit committee effectiveness and timeliness of reporting: Indonesian evidence. Managerial Auditing Journal, 27(4), 403–424. https://doi.org/10.1108/02686901211217996

Salloum, C., Azzi, G., & Gebrayel, E. (2014). Audit committee and financial distress in the middle east context: evidence of the Lebanese financial institutions. International Strategic Management Review, 2(1), 39–45. https://doi.org/10.1016/j.ism.2014.09.001

Samaha, K., Khlif, H., & Hussainey, K. (2015). The impact of board and audit committee characteristics on voluntary disclosure: A meta-analysis. Journal of International Accounting, Auditing and Taxation, 24(C), 13–28. https://doi.org/10.1016/j.intaccaudtax.2014.11.00

Shehata, N. F. (2014). Theories and determinants of voluntary disclosure. Accounting and Finance Research, 3(1), 1–9. https://doi.org/10.5430/afr.v3n1p18

Song, J., & Windram, B. (2004). Benchmarking audit committee effectiveness in financial reporting. International Journal of Auditing, 8(3), 195–205. https://doi.org/10.1111/j.1099-1123.2004.00090.x

Stewart, J., & Munro, L. (2007). The impact of audit committee existence and audit committee meeting frequency on the external audit: Perceptions of Australian auditors. International Journal of Auditing, 11(1), 51–69. https://doi.org/10.1111/j.1099-1123.2007.00356.x

Sun, J., Lan, G., & Liu, G. (2014). Independent audit committee characteristics and real earnings management. Managerial Auditing Journal, 29(2), 153–172. https://doi.org/10.1108/MAJ-05-2013-0865

Sun, J., & Liu, G. (2014). Audit ‘committees’ oversight of bank risk-taking. Journal of Banking and Finance, 40(C), 376–387. https://doi.org/10.1016/j.jbankfin.2013.12.015

Taliyang, S. M., & Jusop, M. (2011). Intellectual capital disclosure and corporate governance structure: Evidence in Malaysia. International Journal of Business and Management, 6(12), 109–117. https://doi.org/10.5539/ijbm.v6n12p109

Velte, P. (2018). Is audit committee expertise connected with increased readability of integrated reports: Evidence from EU companies. Problems and Perspectives in Management, 16(2), 23–41. https://doi.org/10.21511/ppm.16(2).2018.03

Yin, F., Gao, S., Li, W., & Lv, H. (2012). Determinants of audit committee meeting frequency: Evidence from Chinese listed companies. Managerial Auditing Journal, 27(4), 425–444. https://doi.org/10.1108/02686901211218003

Zain, M. M., Subramaniam, N., & Stewart, J. (2006). Internal ‘auditors’ assessment of their contribution to financial statement audits: the relation with audit committee and internal audit function characteristics. International Journal of Auditing, 10(1), 1–18. https://doi.org/10.1111/j.1099-1123.2006.00306.x

Zgarni, I., Hlioui, K., & Zehri, F. (2016). Effective audit committee, audit quality and earnings management. Journal of Accounting in Emerging Economies, 6(2), 138–155. https://doi.org/10.1108/jaee-09-2013-0048