Published Online:April 2025
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP010425
DOI:10.71329/IUPJARAP/2025.24.2.6-39
Author Name:Nitin Dhir and Balwinder Singh
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:6-39
The paper examines the impact of audit mechanisms on the readability and tone of corporate disclosures using a panel of 405 listed Indian firms from 2015 to 2021. An Audit Committee (AC) index, developed using principal component analysis (PCA) on 20 AC variables, captures the effectiveness of internal audit mechanisms. External audit quality is assessed through Big Four (BIG4) auditor engagement and audit fees paid. The findings reveal that reputable and independent ACs enhance readability, while frequent AC meetings contribute to a more negative disclosure tone. Interaction effects indicate that firm valuation moderates the influence of audit governance on disclosure attributes. Additionally, managerial obfuscation strategies persist despite governance oversight, aligning with Impression Management and Information Asymmetry Theories. The study underscores the role of both internal and external audit mechanisms in shaping financial narratives, offering insights for regulators, investors, and corporate policymakers in enhancing disclosure transparency.
This study examines the relationship between audit committee (AC) characteristics, external audit fees and auditor reputation (BIG4), and the tone and readability of annual report narratives in the Indian corporate setting.