Abstract
<p>This study aimed to propose a theoretical framework that explains the relationship between internal corporate governance mechanisms namely audit committee and board of directors, and auditor independence. It is a descriptive study that explored the Saudi corporate governance reforms and the Saudi auditing market. In recent years, Saudi Arabia has been pursuing corporate governance reforms, as evidenced by the setting up of the Capital Market Authority (CMA) in 2003 and the publication of the Saudi Corporate Governance Code (SCGC) in 2006. In the Saudi Organization for Certified Public Accountants (SOCPA), the accounting standards committee holds the responsibility of developing and reviewing accounting and auditing standards in the country. According to the agency theory, corporate governance mechanisms and external audit have a key role in improving the process of financial reporting. Basing the primary argument on the above premise, this study attempted to achieve the following objectives; 1) to explore the issue of auditor independence, and 2) to determine the extent of the effect of corporate practices in Saudi Arabia on the external audit independence. This conceptual work’s outcomes revealed that the regulatory authorities and the CMA have to expend more efforts to improve the awareness and appreciation level of effective corporate governance practices among major internal mechanisms (audit committee and board of directors) and external mechanisms (external auditors) of corporate governance in Saudi Arabia.</p>
Highlights
External auditor is considered, in the traditional agency theory, to be one of the major monitoring mechanisms used to mitigate costs of the lack of alignment between managers and shareholders (Jensen & Meckling, 1976)
The present study primarily aims to achieve two objectives; to explore the auditing practices in Saudi Arabia, and to explore the corporate governance internal mechanisms role in improving auditor independence
The study provided an extensive review of literature concerning corporate governance practices and their relationships with external auditors’ independence
Summary
In the traditional agency theory, to be one of the major monitoring mechanisms used to mitigate costs of the lack of alignment between managers and shareholders (Jensen & Meckling, 1976). The study’s primary objective is to examine internal corporate governance from two integrated points of view namely audit committee and board of directors Through this developed integrated framework, it is expected that the study provides new insights and fills the literature gap pertaining to corporate governance mechanisms and auditor independence relationship. The second contribution of the present study is related to the fact that some studies in literature investigated factors that serve as barriers to auditor independence (e.g., Gul, 1989; Creswell, 1999), only a few studies have explored the factors that serve to promote the same, in the context of Saudi Arabia This lack of studies was stressed by DeFond and Francis (2005) and Kasai (2014) who highlighted that studies that integrated between corporate governance mechanisms (auditor and audit committee) are few and far between. The sixth section presents the research framework, and in the final section, the study is concluded
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
