THE EFFECT OF AUDIT COMMITTEE CHARACTERISTICS ON RISK DISCLOSURE: AN ANALYSIS OF LISTED FIRMS IN GHANA

ABSTRACT

The study examines the effect of audit committee characteristics on risk disclosure in annual reports of listed firms in Ghana for the period 2003 - 2015. Using a sample of 30 listed firms, content analysis technique was employed to compute risk disclosure indexes for quantity and quality of risk disclosure while regression analysis was conducted to examine the effect of audit committee characteristics on risk disclosure. It was found that on average listed firms in Ghana disclosed 29.1% of risk information with the quality of disclosure being 54.0%. With regards to the categories of risk disclosed by listed firms, financial risk was the highly disclosed risk category with operational risk being the least reported risk category. Also, the study revealed that on average nonfinancial firms made more risk disclosures than financial firms. In terms of the quality of risk disclosure, financial firms appeared to disclose high-quality risk information than nonfinancial firms. The results showed a significant positive relationship between quantity of risk disclosure and financial expertise as well as independence of audit committees. On the other hand, size of audit committee and financial expertise of audit committee were found to have a positive and significant relationship with quality of risk disclosure. The study concluded that an audit committee with the relevant characteristics is an effective corporate governance mechanism that can help to protect the interest of shareholders through the effective monitoring of risk disclosure practices of firms. The study contributes to policy by emphasizing that even in the absence of mandatory risk disclosure requirements for firms in Ghana, audit committees with adequate characteristics could help in improving the quantity and quality of risk disclosure by listed firms.”