Impact of Board Characteristics and Audit Quality on Fraudulent Financial Reporting

Authors

  • Dr. Naveed Azeem Assistant Professor, Business Administration & Social Sciences Department, Iqra National University, Peshawar, Pakistan.
  • Dr. Arshad Iqbal Assistant Professor, Business Administration & Social Sciences Department, Iqra National University, Peshawar, Pakistan
  • Sosan Abbas Lecturer, Business Administration & Social Sciences Department, Iqra National University, Peshawar, Pakistan
  • Dr. Majeed Ullah Khan Assistant Professor, Institute of Business Studies, Kohat University of Science and Technology (KUST), Kohat.
  • Dr. Faisal Sheraz Associate Professor , Business Administration & Social Sciences Department, Iqra National University, Peshawar, Pakistan.

Abstract

This study investigates the impact of board characteristics and audit quality on fraudulent financial reporting (FFR) among non-financial firms listed on the Pakistan Stock Exchange from 2012 to 2022. Utilizing the Beneish M-score model to identify potential earnings manipulation, the analysis incorporates governance variables such as board independence, CEO financial expertise, board gender diversity, board vigilance, audit committee independence and vigilance, Big 4 audit affiliation, and external auditor independence. Panel regression results indicate that board independence, CEO expertise, gender diversity, and audit committee vigilance significantly reduce the likelihood of FFR. Conversely, long-term auditor-client relationships appear to increase fraud risk. These findings support agency and resource dependency theories and offer important implications for regulators and firms aiming to enhance corporate governance, transparency, and audit effectiveness in emerging markets like Pakistan.

Keywords:

Board independence, Audit quality, Fraudulent financial reporting, Beneish M-score, Corporate governance, Pakistan, Emerging markets

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Published

2025-07-26

Issue

Vol. 3 No. 3 (2025): Advance Journal of Econometrics and Finance

Section

Articles

How to Cite

Impact of Board Characteristics and Audit Quality on Fraudulent Financial Reporting. (2025). Advance Journal of Econometrics and Finance, 3(3), 92-102. https://ajeaf.com/index.php/Journal/article/view/103