Audit committee characteristics and earnings quality: The role of audit quality and corporate life cycle

Audit committees have drawn more attention globally during the past 20 years. The audit committee, one of the core elements of corporate governance systems, is a powerful tool for regulating and overseeing management. It could have a big impact on how internal firm-board monitoring decisions are made. This study seeks to identify the unique contributions made by each proxy and to provide compelling evidence that demonstrates how an Audit Committee mechanism affects Earnings Management. This paper aims to investigate how the audit committee’s characteristics affect earnings management in Egypt. Using a sample of 80 non-financial Egyptian companies listed on the Egyptian Stock Exchange for the eight financial years from 2012 to 2019. Audit Committee characteristics are represented by Audit Committee independence, Audit Committee size, the frequency of Audit Committee meetings, Audit Committee expertise, and Audit committee gender. Discretionary accruals are used as a proxy for Earnings Management. Panel data regression was used in the archival modeling study. Using a multiple regression model to test the relationship among the variables, the results provide evidence that Audit Committee Size, Audit Committee Expertise and Audit Committee Gender have a significant negative relationship on Earnings Management. Also, there is no significant relationship between Audit Committee Meetings and Earnings Management. Audit Committee Independence has a positive and significant relationship with Earnings Management. This study offers numerous recommendations to the regulatory authorities in Egypt on how to improve and strengthen the internal governance systems of businesses, particularly the Audit Committee.

The main aim of this study is to examine the effect of audit committee (AC) characteristics on earnings quality. A sample of 70 firm-year observations is used from listed firms in Bahrain. The study gives empirical evidence for a period of five years (2015–2019). Data needed for this research is collected from firms' annual reports and corporate governance reports (if provided separately). The sample includes 70 Bahraini firm-year observations. It employs several independent variables including AC independence, AC expertise, AC meetings and AC size. Earnings quality (EQ), the dependent variable, is measured as the absence of earnings management in the sampled firms. The discretionary accruals are used as a proxy for earnings management and implemented using the Modified Jones model (Dechow, 1995). Pearson correlation and multivariate HMR (Hierarchical Multiple Regression) analysis are used. The two HMR models are found to be significant models. The results revealed that some independent variables have positive significant relationship with the earnings quality. The current study recommends that there is a need for future research in other countries, perform comparative analysis of the impact of AC characteristics with earnings quality between listed and non-listed firms.

The study sought to assess the influence of audit committee characteristics on the quality of financial reporting in state corporations in Kenya. Audit committees are created with a sole purpose of affirming the trust towards the company’ integrity in the hearts of the stakeholders in regard to the internal procedures; the exercise by the committee gives the stakeholders’ confidence in matters oversight assigned to the committee. Specifically, the study sought to examine the effect of audit committee expertise and audit committee independence on quality of financial reporting among state corporations in Kenya. An explanatory research design was employed to attain the study's purpose. The study's target population was the 187 government-owned enterprises in Kenya. A sample of 127 firms was selected using a stratified random sampling. A structured questionnaire was utilized to collect data. The data was analysed through descriptive and inferential statistics using the SPSS software. The findings from the study revealed that audit committee expertise has a significant influence on the quality of financial reporting in state corporations. The findings further revealed that the independence of the audit committee had a significant and positive influence on the quality of financial reporting in state corporations in Kenya. The study concluded that through the independence, and expertise of the audit committees, state corporations in Kenya had better quality of the financial reporting. It is therefore recommended that the government through the respective agencies upholds the independence and expertise of the audit committees in order to enhance their ability to deliver appropriate quality of the financial reporting in the corporations.

The present study intends to explore the influence of audit committee characteristics on a firm’s financial performance. The corporate governance mechanisms are highly recognized in era of global financial crisis and current economic recession. Audit committee is one of the core mechanisms that ensure good corporate governance in the firms. Yet, very less evidence found on the impact of audit committee and its characteristics on firm’s performance in the context of Pakistani literature. For that reason, four audit committee characteristics were identified namely audit committee size, independence, activity and quality of external audit to study their impact on firm financial performance while using ROA as accounting measure and Tobin’s Q as market measure. The results of panel data showed that two audit committee characteristics namely audit committee size and external audit quality has strong and significant positive impact on ROA and Tobin’s Q. Another two variables namely audit committee independence and AC activity remains insignificant, which is consistent with mostly previous studies carried in different countries. In short, present study provides an insight to all the regulators, policy makers and stakeholders while adopting certain audit committee characteristics in Pakistan; overall firm’s financial performance can be improved. For further research audit committee expertise can be used to determine the improvement in corporate performance by getting data from the company’s management.

This research objectives is determine whether the audit committee's expertise and the numbers of independent commissioners affect the quality of earnings through earnings management as an intervening variable. Earnings management model using the Modified Jones and earnings quality variables use accrual quality indicators. The study’s population are manufacturing companies listed on the Indonesia Stock Exchange from 2014-2018. The sample of this study selected using purposive sampling method. The results of this study indicate that audit committee expertise has an insignificant negative effect on earnings management and earnings quality, the number of independent commissioners has a significant negative effect on earnings management and has a positive effect on earnings quality. While earnings management has an insignificant positive effect on earnings quality. Therefore, earnings management does not mediate the impact between audit committee expertise and number of independent commissioners on earnings quality as intervening variables.

This paper examines the influence of audit committee (AC) characteristics on investment in internal audit function (IAF) in Malaysia. Furthermore, the moderating role of family ownership on the relationship between investment in IAF and AC characteristics was examined in this study. A balanced panel data was employed. The data was obtained from the annual reports of the top 150 public listed companies in Bursa Malaysia from 2011 to 2019. The findings shows that investment in IAF is positively related to the frequency of AC meetings, but negatively related to the presence of accounting expert, percentage of independent directors and the average tenure of AC members. Also, the findings show that family ownership moderates the relationship between the characteristics of AC and investment in IAF. This result has implications for policymakers as the study suggest that IAF and AC are important corporate governance mechanism in ensuring quality of financial reporting.

The objective of the study is to examine the association between internal and external audit attributes, audit committee characteristics, ownership concentration and discretionary accruals (as a proxy of earnings quality) based on the agency and resource dependence theories. The final sample of the study is 508 firms listed on the Malaysia Main Market from 2009 to 2012. Two measures of discretionary accruals are used, Modified Jones model by Dechow et al. (1995); and extended Modified Jones Model by Yoon et al. (2006). Results of the study suggest that outsourcing internal audit function, investment in internal audit function and external audit fees are related to higher earnings quality. However, large audit committee size, more frequent audit committee meetings, having a senior or former audit partner as audit committee chairman and ownership concentration are associated with lower earnings quality. This study extends the prior related literature by apply extended modified Jones model by Yoon, et al.’s (2006) of discretionary accruals to measure earnings quality in Malaysia Main Market listed companies and introduce new variables, namely audit committee chairman who is a senior or former audit partner in the audit firm. DOI: 10.5901/mjss.2015.v6n3p458

This study aims to determine the effect of systematic risk, the number of audit committee meetings, audit committee expertise, and investment opportunity sets on the earnings quality in the infrastructure, utilities, and transportation companies in the 2014–2018 period listed on IDX. This study uses quantitative analysis methods with a population of 70 companies in the infrastructure, utilities, and transportation sectors listed on IDX in the 2014–2018 period. The samples produced were 50 samples with Non-probability sampling for 5 years period. The data in this study were analyzed using descriptive statistics and panel data regression using E-Views 10. The results showed that systematic risk, number of audit committee meetings, audit committee expertise, and investment opportunity sets contributed simultaneous to the earnings quality. Partially, the number of audit committee meetings contributed negatively, while systematic risk, audit committee expertise and investment opportunity sets do not have a significant contributed with earnings quality.

The Jordanian Corporate Governance Code (JCGC) was first enacted in 2004 and revised in 2017. It offers standards for ethical and decent practices in the corporates. Law in Jordan in 2009 has enforced the formation of an audit committee for all listed companies. Literature has substantiated that the audit committee characteristic (ACCs) impact the quality of financial reporting. This work investigates the role of ACCs in lessening the prospect of corporates in obtaining modified audit opinion in the context of Jordan. Four ACC problems (expertise, independent, meeting, and size) have been studied and the modified audit opinion. The total sample of 117 listed companies on the Amman Stock Exchange (ASE) was studied. The relationship between the modified audit opinions (dependent variable), and ACCs (expertise, independent, meeting, and size; as independent variables) was analyzed using logistic regression. The ACCs is projected to effectively improve the quality of financial reporting, and thus, decrease the prospect of corporate in obtaining modified audit opinion. The findings according to the listed companies from 2012 to 2017 in Jordan showed that audit committee (AC) expertise validates this likelihood. Lastly, there is no effect of AC independent, size, and the number of meetings held on the modified audit opinion. General, the findings have policy implications on enhancing corporate governance (CG) efficacy concerning the quality of financial reporting.

This research finds empirical evidence for the role of earnings quality as a mediator between good corporate governance (GCG) mechanisms and firm performance. The sample is 570 data manufacturing companies listed on the Indonesia Stock Exchange from 2015 to 2019. This research used multiple regression analysis. GCG mechanisms in this study measured by the proportion of independent board of commissioners, audit committee expertise, and frequency of audit committee meetings. The result shows that the proportion of independent board of commissioners and audit committee expertise does not affect earnings quality. On the other hand, institutional ownership and frequency of audit committee meetings affect earnings quality. However, the proportion of independent board of commissioners affects company performance. Institutional ownership, the frequency of audit committee meetings, audit committee expertise in accounting, and earnings quality do not affect company performance. This study provides a basis for investors to see the quality of GCG implementation which is a determinant of earnings quality as an investment consideration.

This study aims to examine the effectiveness of the audit committee and audit quality on earning management. This research is quantitative by using multiple linear regression. In addition, this study uses 496 samples of non-financial sector business entities listed on the Indonesia Stock Exchange period 2014-2015. Practice Earning management will be proxied with discretionary accrual. The audit committee will be proxied with the number of audit committees, independent audit committees, audit committee expertise, and frequency of meetings of the audit committee. At audit quality will be proxied with auditor's reputation, industry specialist auditor, and audit tenure.
 The results show that audit committees and auditor reputation have an affective role in decreasing earning management. The audit committee and industry specialization auditors have no effect on earning management. Similarly, the audit committee and long audit period also no effect on earning management. On the audit committee, audit tenure, and industry specialist auditors have no effect on earning management. However, the auditor’s reputation has a negative effect on earning management.
 Keywords: Audit Committee, Audit Quality, Earning Management.

PurposeThe purpose of this study is to examine the effect of the audit committee (AC) independence, financial expertise, internal audit function, audit quality and ownership concentration on earnings quality (EQ) and, consequently, ascertain whether the AC’s independence and financial expertise has a moderating effect on the relationship between internal audit function and EQ.Design/methodology/approachThe study sample is 508 firms listed on the Main Market of Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange) for the years 2009 to 2012. EQ was measured using two modified Jones models of discretionary accruals.FindingsThe findings reveal that the independence of AC and investment in internal audit function, as well as the Big4 audit firm, are related to greater EQ. Ownership concentration is found to be associated with lower EQ. The study provides evidence that AC’s independence moderates the relationship between internal audit function (investment in and sourcing arrangements of internal audit function) and EQ. It also shows that AC’s financial expertise moderates the relationship between sourcing arrangements of internal audit function and EQ.Practical implicationsThis study extends the prior related literature by examining the AC’s independence and financial expertise as moderating variables on the relationship between internal audit function and EQ.Social implicationsPolicymakers might use the findings regarding EQ in relation to governance practices, to recognize the important roles played by the AC’s independence and financial expertise on the effectiveness of internal audit function with EQ.Originality/valueThis study uses the agency theory and resource dependence theory to provide empirical evidence on the impact of internal audit function and AC on EQ in the ownership concentration environment.

This study examines the impact of audit committee (AC) characteristics on audit quality in the Saudi listed firms. In addition, this study is also evaluating the Saudi CG Code amended in 2017. The data for the study is obtained from secondary (annual reports) data. The sample firms are 210 firms listed on the Saudi Stock Exchange (Tadawul) over the period of 2017-2019. The audit firm type is used as a proxy for quality in this study. Multiple regression analysis is used to assess the relationship between AC characteristics and audit quality. The regression models show that firms with AC educational background in accounting and finance, and larger firms with higher state and institutional ownership are more likely to engage a big four audit firm, in so doing signalling greater audit quality. The results support agency and institutional theories concerning audit quality. In contrast, firms with more experts on the AC and higher leverage are more likely to select non-big four auditing firms which require lower audit fees. However, the size, number of meetings, and degree of independence of the AC do not significantly affect the level of audit quality. In addition, a combined AC effectiveness score is found to have a negative though insignificant impact on audit quality, contradicting governance regulation and theory expectations that effective ACs should improve audit quality. The results of this study present some key implications for CG regulators and other stakeholders. CG regulators should understand that the simple presence of an AC that meets baseline CG regulatory requirements does not automatically ensure its efficacy or improve auditing process quality. Therefore, boards and shareholders must continue to monitor and review AC decisions, particularly where they relate to auditor engagement, even where committees are, prima facie, deemed effective. The study contributes to the existing body of literature on the role of the audit committee in improving audit quality by addressing the paucity of evidence for emerging economies, and the case of Saudi Arabia in particular. The findings should prove useful for regulators and policy makers, academic researchers, accountants, financial experts, and audit practitioners in the Middle East and wider Arab region, particularly for those countries currently reviewing and setting guidelines for effective audit committees. Moreover, the findings should emphasise the importance of the concept of audit quality and its drivers in a Saudi Arabian corporate setting.Keywords: Audit Quality, Audit Committee Characteristics, Audit Committee Effectiveness, Corporate Governance, Corporate Governance Code, Saudi Arabia.JEL Classifications: G3, M4DOI: https://doi.org/10.32479/irmm.11437

The objective of this research is to get empirical evidence audit committees’ characteristics: financial expertise, number of meetings, audit committees’ sizes that moderate the effects of unexpected earnings to cumulative abnormal return. This research also includes independent variables that theoretically influence the relation of unexpected earnings to cumulative abnormal return such as CEO stock ownerships, earnings persistence, market beta, percentage of reporting loss and discretionary accruals. The sample of this research is companies listed in Indonesia Stock Exchange (IDX) during year 2007 to 2009. This research uses 147 data with 49 companies selected per year. The analysis tools used in this research is multiple linear regression. The result shows that financial expertise, number of meetings, audit committees’ sizes and others variables altogether do not moderate the effects of unexpected earnings to cumulative abnormal return or earnings quality reported in financial report. It shows that investors in Indonesia do not consider the characteristics of audit committees in their investment decision making process and the characteristic of audit committees itself does not influence the quality of reported earnings.

This study examines the effectiveness of some audit committee (AC) characteristics to monitor management behavior with the respect to their incentives to manage earnings. Bahraini listed companies on Bahrain Bursa for the year 2012 to 2014 have been investigated to analyze the relationship between AC characteristics and earnings management. The AC characteristics examined are AC independence, AC size, AC meetings and AC financial experts. Multivariate regression modelis used to examine the relationship between earnings managementasdependent variable and AC characteristics as independent variables and other firm-specific attributes, as control variables. As a small developing market, Bahrain’s unique business environment and context offer a good opportunity and provides a useful setting for examining the effectiveness of AC characteristics in detecting and preventing earnings management practices. The results show that discretionary accruals as a proxy for earnings management is negatively associated with AC size and AC financial experts, but positively associated audit firm size as control variable. However, the results do not show a significant relationship between AC independence, AC meetings, company size, leverage and earnings management. This study extends the literature on the monitoring function of the AC on earnings management, and contributes geographically to the financial reporting process and earnings management literatures by analyzing data from an emerging market and providing useful information for the corporations, accounting profession and the regulators on the effective practice of ACs.