Moderating Effect of Audit Committee Expertise on Risk Disclosure and Financial Reporting Quality of Listed Industrial Goods Companies in Nigeria

Abstract

This study examined the effect of firm-level risk exposures on financial reporting quality of quoted industrial goods companies in Nigeria, with specific emphasis on the moderating role of audit committee expertise. The study adopts an ex-post facto research design and utilizes panel data obtained from the annual reports of selected quoted industrial goods firms in Nigeria over the study period. Dynamic panel estimation technique was employed. The empirical findings reveal that financial reporting quality is not significantly influenced by its past values but responds strongly to contemporaneous risk conditions and governance mechanisms. Specifically, audit committee expertise exerts a positive and statistically significant moderating effect on the relationship between credit risk and financial reporting quality, indicating that firms with more knowledgeable audit committees are better able to maintain transparent reporting in the presence of credit risk. Conversely, liquidity risk interacting with audit committee expertise has a significant negative effect on financial reporting quality, suggesting that liquidity pressures undermine reporting quality even under expert oversight. Operational risk also shows a negative moderating effect, while the interaction between market risk and audit committee expertise is positive but statistically insignificant. The study concludes that audit committee expertise improves financial reporting quality selectively, particularly in areas involving credit-related accounting judgments, but is insufficient to fully offset the adverse effects of operational and liquidity risks. Consequently, the study recommends that industrial goods companies strengthen the financial and accounting expertise of audit committee members, while also reinforcing internal control systems and liquidity management frameworks to enhance financial reporting quality and investor confidence.