JFAMM-4-2016 49 Investigation the relationship between accounting experts and independence of audit committee and financial reporting quality: Empirical result from Iran Ahmad Abdollahi Golestan Institute of Higher Education, Gorgan, Iran e-mail: ahmabdollahi@gmail.com Seyed Aliakbar Nosrati Islamis Azad University, Aliabad Katoul, Iran e-mail: s.a.a.nosrati83@gmail.com Abstract. The credibility and relevance of financial reporting information is evaluated by the audit committee in collaboration with internal auditors and external auditors. The aim of this study is to investigate whether or not the accounting experts and independence of audit committee suggested in theory and required by law are associated with the financial reporting quality in Tehran Stock Exchange. Thus, data from 2013 and 2014 are used for 54 Iranian companies that have established an audit committee. This empirical study showed a positive and significant association between the proportion of audit committee members concurrently holding more than three directorships and financial statement quality. It also finds evidence that audit committee independence is significantly related to financial reporting quality. Keywords: audit committee, corporate governance, accruals, financial reporting quality, Tehran Stock Exchange 1. Introduction. In February 2005, the European Commission recommended the establishment of an audit committee for all listed firms. The European Parliament and the Council of the European Union developed this into legislation in December 2005 (European Parliament and the Council of the European Union 2006). The implementation of this recommendation by member states is occurring through changes to laws or through corporate governance codes based upon the ‘comply or explain’ principle. In the United States (US), compliance to the Sarbanes– Oxley Act is mandatory.1 The audit committee is empowered by the board of directors to gain expertise and resources that aim to enhance the quality of financial statements. The objective is to increase the visibility and credibility of the information released by companies, which has become an important issue in the aftermath of several well-known fraud scandals. The credibility and relevance of financial statement information is evaluated by the audit committee in collaboration with both internal auditors (especially in large organizations) and external auditors (Piot and Janin 2007). The objective of this study is to investigate whether or not the audit committee characteristics suggested in theory, recommended in the Corporate Governance Code guidelines and required by law are associated with the financial statement quality of Irancompanies. The Iran Corporate Governance Code was published in 2004 and updated in 2009 to provide standards of good practice. Belgium has reinforced corporate governance via the law of 17 December 2008 that requires each company’s board of directors to establish an audit committee for al l listed companies, including insurance, credit and investment companies (Moniteur Belge 2008). Companies are only exempted if they meet two of the three following criteria: • 250 employees; • 43,000,000 euros of total assets; or • 50,000,000 euros of net earnings. In these cases, the board of directors undertakes the audit committee’s duties. The Iran Corporate Governance Code recommends that the audit committee is comprised primarily of independent directors. Additionally, the Code recommends that at least one member of the audit committee is competent in accounting and audit. Previous studies, such as those by Carcello et al. (2006) and Krishnan and Visvanathan (2008), find that members with expertise in accounting and audit are in a better position to monitor the quality of financial information. Furthermore, the Iran Corporate Governance Code recommends not appointing directors that have more than five directorships. Aside from the directors’ profiles, there are two essential characteristics to study: the size of the audit committee and the number of committee meetings. The Code stipulates that the audit committee should have at least three members, whereas the law remains silent on this matter. The Code also recommends four meetings each year, while this is not covered by the law (Moniteur Belge 2008). This study