Financial reporting complexities: Association with accounting expertise of board and audit committee

• Published date: 01 January 2024
• Author: Sylvia Veronica Siregar,Siti Nurwahyuningsih Harahap
• Date: 01 January 2024
• DOI: http://doi.org/10.1002/jcaf.22658

Received: 6 June 2023Revised: 7 September 2023Accepted: 9 September 2023

DOI: 10.1002/jcaf.22658

RESEARCH ARTICLE

Financial reporting complexities: Association with

accounting expertise of board and audit committee

Sylvia Veronica SiregarSiti Nurwahyuningsih Harahap

UI Campus, Universitas Indonesia,

Depok, Indonesia

Correspondence

Sylvia VeronicaSiregar, Universitas

Indonesia, UI Campus, Depok, 16424,

Indonesia.

Email: sylvia.veronica@ui.ac.id

Funding information

Universitas Indonesia PUTI,

Grant/AwardNumber:

NKB-2042/UN2.RST/HKP.05.00/2020

Abstract

The purpose of our study is to examine the financial reporting complexity of

listed firms in Indonesia and the association between the financial reporting

complexity and the accounting expertise of boards (Board of Directors/BOD and

Board of Commissioners/BOC) and audit committee members. We use samples

of listed firms in Indonesia over the period from 2013 to 2019. Wefind that f inan-

cial reporting complexity is negatively associated with the accounting expertise

of the BOD, BOC, and audit committee. These results indicate that companies

do not try to engage in higher accounting expertise to mitigate the unfavourable

impact of financial reporting complexity and that companies tend to use the

financial reporting complexity to obfuscate the financial reporting. The novelty

of our study is developing an aggregate measure of the financial reporting com-

plexity that has not been used in extant studies. We also have not found any

previous studies examining this issue in emerging countries, including Indone-

sia. The previous study has examined similar issues in the USA, where the USA

is a developed country with a high level of investor protection. The varyinglevels

of investor protection may affect the results.

KEYWORDS

audit committee, accounting expertise, board, financial reporting complexity

1 INTRODUCTION

The objective of financial reporting is “to provide finan-

cial information about the reporting entity that is useful

to existing and potential investors, lenders and other cred-

itors in making decisions relating to providing resources

to the entity” (IASB Conceptual Framework). One of the

enhancing qualitative characteristics of financial report is

understandability. Complex financial reports are not easy

to understand, and therefore possibly misleading.

Dyer et al. (2017) argues that there are increasing con-

cerns from investors, preparers, regulators, and standard

setters about the length of corporate disclosure. There are

concerns that the disclosure not just become longer, but

also less readable. There are several explanations of this

trend, such as increase in business complexity as well as

additional disclosures requirement. They examined the 10-

K disclosure during year 1996–2013, and they find that the

length of disclosures is increasing over time, where the

median text length increases more than double from year

1996 to year 2013. They also found that readability also

decreases. Thus, there is an increasing of financial report-

ing complexity. We define financial reporting complexities

as to the challenges and difficulties that arise from the

application of accounting standards, regulations, and prin-

ciples in preparing and presenting financial statements.

Previous studies examining financial reporting com-

plexity usually use the assumption that management

J Corp Account Finance. 2024;35:203–217. ©2023 Wiley Periodicals LLC.203wileyonlinelibrary.com/journal/jcaf