Does audit committee characteristics a driver in risk disclosure?

Abstract Risk disclosure is one of the practices of corporate governance. Disclosure of risk is an important aspect of a company’s financial reporting since it provides information on how various risks can occur, the company’s response to these risks, and the impact these risks have on the company’s future. By sharing risk information, the corporation has attempted to be more transparent in delivering information to its stakeholders. Based on risk disclosure information, stakeholders are anticipated to make better judgments. This study aimed to examine the influence of audit committee characteristics on risk disclosure. This analysis includes 202 bank statements from 2017 to 2021, the observation period for banks listed on the Indonesia Stock Exchange. Regression was used for data extracted from annual reports, corporate governance reports, and company websites. The results demonstrated that the audit committee’s expertise positively impacted risk disclosure. Risk disclosure is unaffected by the size and frequency of the audit committee. The audit committee plays a crucial role in providing information regarding risks; therefore, the corporation must pay close attention to the audit committee’s quality. The knowledge of audit committees with a background in accounting or financial education can promote risk disclosure.


Introduction
The non-financial segment on financial statements is an important piece of information that is of special interest to investors. Financial statements present information in financial terms (Roszkowska-Menkes, 2021;Soheilirad et al., 2017;Zarzycka et al., 2021) in the form of numbers or segments, as well as other information (non-financial) that can influence stakeholders in decision-making (Freeman & McVea, 2005;Soheilirad et al., 2017). Non-financial information is considered capable of explaining the information that cannot be disclosed from the financial side in a financial statement (Pizzi, 2018).
Disclosure of risk is a component of disclosure of non-financial information. Identifies risk disclosure as one of the corporate governance practices (Roszkowska-Menkes, 2021;Al-Maghzom et al. (2016); Oliveira et al. (2011). Based on the risk disclosure information, stakeholders are expected to be better at making decisions (Freeman & McVea, 2005;Mallin et al., 2013;Mason & Simmons, 2014;Stahl et al., 2020). Disclosure of risk is a significant aspect of a company's financial reporting because it provides information on how various risks can occur, the company's response to emerging risks, and the potential impact of these risks (Elzahar & Hussainey, 2012;Miihkinen, 2012). By disclosing risk information in financial statements, The corporation has attempted to be more forthcoming with information to its stakeholders (Elgammal et al., 2018;Salem et al., 2019).
The banking industry in Indonesia is used as a sample in this study, with the audit committee's features as a factor believed to boost risk disclosure. The audit committee is a vital component of corporate governance to reduce agency conflicts between owners and managers. Researchers have conducted empirical studies on risk disclosure and its relationship to the characteristics of audit committees, including finding a good correlation between audit committees and risk disclosure levels. Examining the disclosure of operational risks in the financial statements of Islamic banks in MENA nations (Al-Shaer and Zaman (2018), Kartal et al. (2018), Naimah and Mukti (2019), Poretti et al. (2018), andElamer et al. (2020), using a sample of 63 Islamic banks, the governance structure is statistically significant and related to the disclosure of operational risks. Other research was conducted by banks in Tunisia using (Elamer et al., 2020;Salem et al., 2019) measuring the quality of risk disclosures in 152 annual reports from non-financial enterprises listed in Tunisia using human text analysis techniques. According to the study's findings, the quality of risk disclosure in Tunisian corporations was quite low. Additionally, investigate the extent of risk disclosure in banks. This study (Rokhmawati et al., 2015) explores the effect of risk governance, as proxied by the independence of the audit committee, on the disclosure of bank operational risks in the banking sector. The factor of independence reduces the quality of operational risk disclosure.
This study investigates the impact of audit committee characteristics on the disclosure of bank risk. This study's basis is comprised of audit committee characteristics for two reasons. First, the audit committee performs a crucial function in monitoring management disclosures about financial statement risk (Al-Jalahma, 2022; Dwekat et al., 2020;Ha, 2022). Second, existing research on the association between risk disclosure and audit committee characteristics in banks is surprisingly limited. While the characteristics of audit committees are being researched in different countries, there are still research gaps in developing countries. Thus, Indonesia offers optimal settings for evaluating the relationship between risk disclosure and audit committee characteristics.
The study then conducts a review of the relevant literature and formulates hypotheses. The results and discussion follow the research technique in this paper. The report finishes with a summary, conclusion, and future discoveries for further research.

Literature review and hypotheses development
According to the notion of agency, disagreements between shareholders and managers frequently lead to managers acting in their best interests (Jensen & Meckling, 1976;, Taqi et al., 2022. Therefore, it is crucial to establish an environment with appropriate monitoring and regulatory mechanisms to safeguard shareholder interests (Kalbuana, Kusiyah et al., 2022;Turley & Zaman, 2014). Moreover, it is essential to have successful corporate governance processes (such as audit committees) to reduce such conflicts (Krishnan, 2005). The relationship between audit committee characteristics and performance was investigated by Kallamu and Saat (2015), and contradictory findings were discovered. This study examines the connection between audit committee features (such as the number of committee members, their expertise, and the frequency of audit committee meetings) and risk disclosure.
The size of the audit committee is a key factor contributing to its success. The number of committee members contributes to resolving corporate reporting issues (Li et al., 2014). The empirical findings of Alshirah et al. (2020) indicate that the audit committee's size influences the risk disclosure level favorably. Ghabayen (2012) discovered no correlation between audit committee count and risk disclosure. The size of the audit committee, on the other hand, has no substantial effect on intellectual capital disclosure (ICD; Naimah & Mukti, 2019).
Members of the Audit Committee with accounting or financial knowledge can comprehend concerns more fully and risks and propose procedures to overcome and detect problems and risks (DeZoort & Salterio, 2001). Ahmad et al. (2015) argue that the audit committee's effectiveness in its supervisory function requires knowledge of finances to ensure and produce good disclosures to shareholders and the public. According to Oussii and Clibi (2020), an audit committee requires financial skills to address the global financial crisis due to an increase in accounting scandals. Members of the audit committee with a deeper understanding of financial statements are more likely to identify and call attention to major misstatements in financial statements. Audit committee members with financial expertise can also oversee the financial statement process more effectively (Dewayanto & Setiadi, 2017).
The audit committee meeting is regarded as one of the essential components for examining the organization's financial reporting process. Previous research described the connection between audit committee sessions and risk disclosure (Aljaaidi et al., 2021). Alshirah et al. (2020) No evidence exists that the audit committee's meeting frequency influences risk disclosure in Jordanian enterprises. Then, the audit committee's conclusions favorably impact Intellectual Capital Disclosure (ICD; Naimah & Mukti, 2019).
In light of the contradictory findings of the literature review concerning the relationship between audit committee features and risk disclosure in a variety of study situations and aims, this research demonstrates the following hypotheses: H 1 : The size of the audit committee positively affects risk disclosure H 2 : Audit committee expertise positively affects risk disclosure H 3 : The number of audit committee meetings positively affects risk disclosure In addition to examining the influence of independent variables on dependent variables, the study included company size, leverage, and age as control variables.

Research methods
This study utilizes annual reports, reports on the application of corporate governance, and company websites to collect data. From 2017 through 2021, 46 banks listed on the Indonesia Stock Exchange (IDX) are the subject of this study. After removing unique characteristics, the final sample for the study consisted of 202 bank financial statements. Using the strategy of purposive sampling and taking into account the availability of annual reports on the IDX, samples were selected. This study employed cross-sectional data and quantitative design methodologies, and STATA 17 was utilized to analyze the data.
This study measures risk disclosures as dependent variables using content analysis. The content analysis method is often used in previous studies. The Abraham and Cox (2007) and Ngu and Amran (2021) index utilized in this study refers to the "Financial Services Authority Regulation" (POJK) Number 18/23/POJK.03/2016, specifically disclosure: Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Legal Risk, Reputation Risk, Strategy Risk, and Compliance Risk.
This study studied the audit committee's features, which were proxied by the number of audit committee sizes, audit committee expertise, and audit committee meetings, as well as three control factors: company size, leverage, and company age (Table 1). Large corporations are anticipated to have more resources where management can identify risks and opportunities connected to risk disclosure and offer stakeholders the necessary data (Manes-Rossi et al., 2018). Stakeholders typically pressure firms with large levels of leverage to disclose information to minimize reputational and legitimacy issues (Jonah et al., 2020). As a company's reputation and responsibilities become increasingly solidified over time, the level of risk disclosure increases as its age increases (Ali Al-Gamrh & Ahmed AL-Dhamari, 2016). The Hypothesis-Testing Regression Model is as follows: RD i;t ¼α 0 þβ 1 AC Sizei; tþβ 2 AC Expi; tþβ 3 AC Meeti; tþβ 4 SIZEi; tþ β5 LEVi; tþB 6 AGE i;t þe i;t Table 2 displays the findings of the descriptive statistical analysis. Risk disclosures have an average of 0.985148, or 98.5% of companies have disclosed their risk management. The smallest disclosure index is 0.125 the largest disclosure index is 1.

Descriptive statistical results
The smallest audit committee size is three members, and the biggest audit committee size is ten members. In comparison, the average number of audit committees in this study is 3.881188 people. Following article 4 of the PJOK Number 55/ POJK.04/ 2015, the typical company in this study has at least three members on its audit committee. A minimum of one member and a maximum of six members of the audit committee must have a background in finance or accounting. The average score is 2.792079, indicating that the audit committee must have at least one member with financial or accounting knowledge. The minimum frequency of audit committee meetings is three, and the maximum frequency is thirty. The frequency of audit The company's size is 10.62061 with a minimum value of 7.724888 and a maximum of 14.36109; thus, the sample of this study is a large company. The average leverage is 6.211269 from the maximum value of 113.3034 and the minimum value of 0.005941; the company's activities use many debt sources rather than own capital, which on average reaches 6.211269 debts greater than the own capital owned by the company. The maximum age of the sample company is 40 years, and the minimum is one year, with an average value of 15.61881 years.

Regression results
In this study, testing was conducted to choose the optimal model for implementation. Based on the findings of the Chow test, the LM test, and the Hausman test, the best estimating model for this investigation was the Fixed Effect model. In Table 3, the audit committee's size is anticipated to impact risk disclosure favorably. This study's findings and the audit committee's size showed a negative influence and a significant value of 0.225; therefore, the first hypothesis was rejected. These results complement the findings of Ghabayen (2012), who determined that the size of the audit committee has no bearing on risk disclosure. Therefore, the size of the audit committee has little bearing on its control of the range of material revealed in the annual report. Contrary to Li et al. (2014)and Alshirah et al. (2020), the implementation of agency theory state that the audit  committee as a corporate support committee is expected to influence the company's risk disclosure practices.
These findings do not support agency theory, which analyzes the kind of agreement between shareholders and agents in managing a firm; the agent carries a substantial amount of responsibility for the success of the company he runs. There are three types of agency fees: residual, monitoring, and bonding (Jensen & Meckling, 1976).
With a coefficient value of 0.008 (0.05), the audit committee's knowledge favorably influences risk disclosure. These data suggest that the audit committee's education in finance or accounting may be a factor in enhancing risk disclosure. The results of this study are compatible with the  study (Malik et al., 2020) and the study (Afzali et al., 2022;Mohamed et al., 2019). The more expert an audit committee is, the higher its ability to identify complex problems that occur within the company, including identifying the extent and scope of potential risks that will occur.
This study's conclusions are backed by agency theory, which examines the agreement between the principal and the agent in managing the company; the agent carries a significant amount of responsibility for the success of the company he runs. There are three types of agency fees: residual, monitoring, and bonding (Jensen & Meckling, 1976). Principals engage in agency relationships when they hire an agent to perform services on their behalf and then invest with discretionary authority in the agent's agency. As business managers, agents have access to more secret and current information than the proprietors of their employers (Tuhaika, 2007). Therefore, the agent must report the company's state to the principal.
The third hypothesis forecasts the influence of audit committee meeting frequency on risk disclosure. The test results indicate that the frequency of audit committee board meetings has a positive effect on risk disclosure but a significance value of 0.358 > 0.05; this means that the greater the frequency of audit committee meetings within a company does not affect the disclosure of risks in the annual report, consistent with the findings of Alshirah et al. (2020). The results of this regression testing are inconsistent with the study (Naimah & Mukti, 2019). Audit committee meetings held regularly have not been able to provide added value to the company.

Robustness test and additional test
Using the Tobit approach, we also evaluate resilience. For cross-sectional data, James Tobin's Tobit approach was later utilized (Tobin, 1958) by Odah et al. (2018) and by Nathalia and Setiawan (2022). The outcomes in Table 4 are consistent with the regression results that the size of the audit committee and the frequency of audit committee meetings have no effect on risk disclosure, and the audit committee's expertise positively affects risk disclosure.
We also conducted additional tests by adding profitability (ROE) ( Table 5); a high ROE is expected to drive risk disclosure on the company's report. Additional test results are consistent with regression results and Robustness Test results (Elmarzouky et al., 2022).

Conclusion
The result of the study shows that audit committee have significant effect on risk disclosure. This study use three audit committee characteristics such as audit committee size, expertise and number of meetings. The audit committee expertise have positively affect risk disclosure. Thus, expertise improve the risk disclosure in Indonesia banks. On the other hand, audit committee size and number of meeting have no significant affect to risk disclosure. The audit committee expertise is the main driver for the risk disclsoure in Indonesian banks. The practical implications contributed from the results of this study are that regulators need to go deeper to understand the factors that drive companies to disclose risk information. This research has limitations; First, this research is confined to banks listed on the Indonesia Stock Exchange and the timeframe 2017-2021. Second, the results of this study do not fully support the role of the audit committee's existence and experience in governance implementation, which is to encourage corporations to disclose more risk-related information. It is anticipated that future research will remedy the limitations of this study by using other proxies of corporate governance variables, such as the use of scores or indices, such as the Risk Disclosure Index (RDI) comprised of 34 items produced by Probohudono et al (2013). Third, our study do not consider the effect of ownership structure. Previous research shows that ownership structure have significant impact on the firm's disclosure (Setiawan et al., , 2021Wicaksono & Setiawan, 2022). Therefore, it is expected that future studies consider the importance of ownership structure in their study.