28 February, 2021

Foreign audit committee members linked to low-quality financial reporting

Swedish research concludes that appointing foreign directors to an audit committee can undermine the quality of financial reporting.

Directors around a table featuring foreign language phrases

Image: Rawpixel.com/Shutterstock

Much is made of recruiting board members from around the world. Non-executives from distant shores can add value and certainty provide knowledge of foreign markets. But do foreign directors add value when appointed as audit committee members? New research seems to suggest not. Research conducted in Sweden concludes that foreign audit committee members can undermine the quality of financial reporting. “We provide evidence that the presence of foreign directors on a corporate audit committee leads to significantly low financial reporting quality,” academics at the Research Institute of Industrial Economics (RIIE) in Stockholm conclude

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audit, audit committee, board communication, board directors, financial reporting, non-executive directors