Corporate governance and financial reporting quality in Jordanian banking sector: The mediating role of audit quality

Agency Problems, Auditing, and the Theory of the Firm: Some EvidenceAuthor(s): Ross L. Watts and Jerold L. ZimmermanSource: Journal of Law and Economics, Vol. 26, No. 3, (Oct., 1983), pp. 613-633Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/725039Accessed: 29/06/2008 23:14

Audit committees are one of Corporate Governance (CG) mechanisms which are the significant factor in improving its role in inhibiting financial statement fraud (Choi, Jeon & Park, 2004; Habbash, 2010; Soliman & Ragab, 2014). Quality of the Financial Statement emphasised as being in compliance with accounting standards accepted in general, the disclosure scale, and reported numbers although this is not merely a task for the IFRS (Cascino & Gassen, 2010). In recent years, the issue of IFRS adoption in developed and developing countries have been a great deal of attention from many researchers. However, regarding the relationship between the Audit Committee and Quality of Financial Statement with IFRS requirements is still questioning. In fact, the results obtained from some previous researches are inconsistent. Therefore, the objectives in this study are aims to investigate whether post the mandatory IFRS adoption in Malaysia would limit earnings management practice in highlights of governance monitoring on the quality of financial reporting in this environment. This paper gives some evidence: 1) The effect of pre- and post IFRS adoption in Malaysia in the relationship between the Audit Committee and earnings management adoption. 2) examine the differences of the level earnings management on two periods of IFRS adoption in Malaysia. Quality of Financial statement in this study was measured by the level of earnings management with discretional accrual (DA) proxy. The audit committee variable measured by Audit Committee Independence (ACIND), Audit Committee Financial Expertise (ACFEX), Audit Committee Meeting (ACMEET), Audit Committee Size (ACSIZE) and control variable in this study using Board Size (BRDSIZE) and Firm Leverage (FRMLEV). The sample of this study including the two main time periods, there are pre-IFRS adoption and post-IFRS adoption. Using 81 listed companies in Malaysia as a sample, with 567 observations is analysed from 2009 to 2015 (7 years observations) with purposive judgement sampling selection. For seven years, a total of 567 observations is analysed. The pre- IFRS adoption period was tested from 2009 through 2011, and the post-IFRS adoption was tested from 2012 through the end of 2015. The findings in this study with multiplied regression analysis revealed that the hypothesis test in a period of pre- and post IFRS adoption ACFEX and FIRMLEV statistically were significance at 5% level. It means that Audit Committee Financial Expertise (ACFEX) have a significant effect on earnings management practise. According to the result found in the post IFRS adoption period, Audit Committee Meeting (ACMEET) is significant. It means that the frequency of audit committee meetings could be decreasing the level of discretionary accrual. The evidence also unveils both of ACIND and ACSIZE at 5 % level p-value is not significant. The most important result finding on pre- and post period of IFRS adoption in Malaysia provide evidence that based on the statistically significant was upward or the relation more significantly. However, this study also reported with paired sampled test analysis there was no significant difference between the level of earnings management in pre- and post period the adoption of IFRS in Malaysia at 5% level significance. 
 An important contribution this study has the impact on practices and has implications useful for regulators. The study provides empirical evidence that a relationship between the audit committee and earnings management in the case of IFRS adoption. In contributing to the strength of governance quality and FRQ need to be revisited, especially after mandatory IFRS adoption. Though the audit committee and audit quality are implicitly mentioned in the CG act, it is recommended that formulates specific rules relating to the quality of Financial Reporting. In this regard, it is suggested that company reports would be presented high quality in financial reporting to provide appropriate responses to recommendations made in the reports. Finally, these findings suggest that CG practices in Malaysian that have its own peculiar characteristics compared to other emerging economies. 

It has been highlighted by the business world that audit quality and corporate governance can play critical roles in various corporate scandals. Understanding how the relationships between effective corporate governance and audit quality is important, requires investigating their components more precisely. So, the present study aims to carry out a comprehensive review and comparative summarizing the results of the published works on the effectiveness of corporate governance mechanisms, as well as audit committee’s influencing factors, in order to investigate their probable effects on audit quality. In this regard, despite audit quality influencing factors and auditor specifications were found to be able to affect the audit quality significantly, audit firm size has been identified as the most important factor affecting audit quality. Moreover, both board of directors and audit committees specifications were identified as critical influencing factors in the effectiveness of corporate governance which interacts with audit quality. As a consequence, changes in effectiveness of the corporate governance should be considered as an important factor, when assessing the audit quality.

Purpose This paper examines the effect of corporate governance (CG) mechanisms, namely the board of directors (BOD) and audit committee’s (AC) on audit quality (AQ) in the Egyptian context. Design/methodology/approach We used a sample of 57 non-financial Egyptian listed firms from 2016 to 2022 to analyze the effect of BOD and AC attributes on AQ using a two-step generalized method of moments (2SYS-GMM) estimator. Findings Grounded in agency theory and resource dependence theory, the findings reveal both complementary and competing explanations for the observed relationships. A significant positive relationship between "audit fees" (AF), used as a proxy for audit quality (AQ), and attributes such as board size, board independence, audit committee size, and audit committee gender diversity. In contrast, a significant negative relationship is found between “auditor industry specialization” (AS)- the second proxy for AQ- and both the percentage of non-executive independent directors and the percentage of non-executive directors on the AC. Furthermore, the frequency of AC meetings negatively and significantly associated with the auditor’s industry specialization. Research limitations The study has some caveats; it excluded listed firms that were audited by more than one auditor, public sector audit services, and other CG attributes like CEO duality and the financial knowledge of the AC. Research implications Our work adds to the body of knowledge in the fields of CG and audit. We apply agency and resource dependence theories to the Egyptian context. The study offers practical suggestions for governments, legislators, auditors, and audit service customers to enhance regulatory frameworks by promoting audit committee independence and board gender diversity. Originality/value Our study is the first to provide empirical evidence regarding the combined effect of BOD and AC on different aspects of AQ (demand and supply) in an emerging market.

The research dealt with the legal frameworks for applying Basel III principles in the banking sector in Jordan, where the focus was on clarifying the principles established by the Basel III Committee and the extent of Jordanian banks’ commitment to implementing them through the corporate governance instructions for Jordanian banks issued by the Central Bank of Jordan and amended in 2023. The importance of the research lies in determining the extent of compatibility of these instructions with the principles of Basel III, the result we reached was that corporate governance instructions were issued to be consistent with the principles of Basel III. Thus, the Central Bank of Jordan contributed effectively to applying international standards to the Jordanian banking sector, and the study recommended modernizing the banking system completely to reach To the highest level of application of Basel III principles, by supporting all principles related to corporate governance within banks by activating their constituent elements, and issuing a special law for corporate governance in addition to the instructions of the Central Bank.

Purpose — This research aims to investigate the factors that affect audit quality, including the board of directors’ characteristics and performance, the audit committee's responsibilities, internal audit factors and performance, and the quality of the external audit. Design/methodology/approach—This study expanded on previous research that has used different proxies to measure audit quality. It employed a questionnaire to measure audit quality and internal governance mechanisms by adopting some practical indicators from previous literature that could reflect and affect audit quality. Findings — According to the regression results, it has been found that there is a strong positive relationship, which is statistically significant, between the work performance of internal auditors and the audit quality (β =0.280, p=.000); the strongest relationship was between audit quality and work performance, and it contributes to the model, and this is consistent with prior studies. Further, the board of directors’ responsibilities has been determined to have a significant impact on audit quality where the coefficient of determination is .085 at a significant level. Practical implications — Due to prevalent corporate scandals and audit failures worldwide in recent years, there has been a renewed interest in the relationship between Internal Corporate Governance Mechanisms (ICGM) and External Audit Quality (EAQ). Audit quality and corporate governance mechanisms are significant aspects of today’s business practices. Hence, these issues have evoked interest and received the attention of regulators, researchers, and practitioners. They have become the centre of the argument due to their role in boosting investors’ confidence and improving the reliability of financial reports. Originality/value—The current study contributed to the auditing and corporate governance literature. It expanded on previous research that used different proxies to measure audit quality and factors influencing audit quality. Keywords — Pancasila, accounting education, accountant, financial fraud Paper type — Research Paper

This paper aims to investigate the effect of the presence of female board directors and corporate governance mechanisms on agency cost focusing on board of directors’ and audit committee’s characteristics. The samples used in this study consisted of 150 companies listed on Bursa Malaysia in trade and services sector from 2010 until 2013. The dependent variable in this research is agency cost. Based on the extensive literature review, this study applied two agency cost proxies, which are asset utilisation ratio (AUR) and expense ratio (ER). Meanwhile, there are seven independent variable which are female board directors, board size, CEO duality, independent directors, size of the audit committee, audit committee meeting and audit quality. Data was analysed using descriptive statistics, correlation analysis and linear regression. The empirical result reveals that female board directors, board size, CEO duality, independent directors, and audit quality have a significantly negative relationship with agency cost using asset utilisation ratio (AUR) as the proxy. Meanwhile, for expense ratio (ER) proxy, the result shows that female board directors, the size of the audit committee, and audit quality have a significantly negative relationship with agency cost. Besides that, with these research findings, the corporate companies could have a better and thorough understanding about corporate governance which would help them decrease their agency cost from time to time. The findings also could be used as the reference and guidance in establishing company policies or finance policies in decreasing the company’s agency cost. Plus, these findings enrich the literature in corporate companies, thus help future researchers. Finally, the researcher presented some suggestions and recommendations for future studies to diversify the sectors of the selected companies so that the data obtained will be wider and larger. Besides, future researchers may extend the data period from four years up to 10 years.

Corporate governance, audit committee, and audit quality are important factors that can influence company performance. Good corporate governance can create an effective internal control system, increase transparency and maintain company accountability. The audit committee, as part of corporate governance, plays a role in overseeing the financial reporting process, evaluating the internal control system, and monitoring external audit performance. High audit quality can increase stakeholder confidence in the company's financial reports and provide guarantees for the accuracy and reliability of financial information. This research aims to analyze the influence of corporate governance, audit committee, and audit quality on company performance. Corporate governance variables are measured using corporate governance scores, while audit committee variables are evaluated based on the characteristics and effectiveness of the audit committee. Audit quality is assessed by the reputation and experience of the external auditor. Meanwhile, company performance is measured using financial ratios such as return on assets (ROA) and return on equity (ROE). This research uses data from companies listed on the Indonesia Stock Exchange (BEI) during a certain period. Data analysis was carried out using the multiple linear regression method to test the influence of independent variables on the dependent variable. It is hoped that the findings of this research will contribute to the development of corporate governance practices, audit committee management, and improvement of audit quality in Indonesia, as well as provide insight for companies in efforts to improve their financial and operational performance.

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

ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

The aim of the project was to investigate corporate governance practices in UK higher education institutions (HEIs). Specifically, the project sought to examine the role and effectiveness of the audit committee in supporting what was initially conceptualised as financial leadership’ in HEIs. What makes a board, and its various committees, an effective mechanism is a key and recurring question, which has been raised in academic, practitioner and policymaking circles and is relevant to companies, public bodies, charities and universities alike. The case of the audit committee is often highlighted in practice and in the literature, since it is a central plank of any corporate governance structure, normally tasked with overseeing the financial, control, auditing and risk management aspects of the organisation. In the light of the rapidly changing and uncertain financial environment faced by UK HEIs, the role of the audit committee is critical in monitoring, advising and shaping the HEI’s direction, and its work and structure have been the subject of detailed guidance by the Committee of University Chairs (CUC), supplemented by developmental resources from the Leadership Foundation for Higher Education and accountancy firms. However, what has been missing so far is a comprehensive cross-sectional analysis of the audit committee’s actual structure and characteristics in UK HEIs and the impact this has on organisational outcomes, and a deeper understanding of the role and activities of the audit committee from the field. In terms of the practical direction adopted during the research and how the results are presented in the final report, this has cascaded into three sub-objectives that we have fully achieved; ie, to: (a) investigate the characteristics of the audit committee in UK HEIs (b) investigate HEIs’ level of public accountability and the likely impact of the audit committee on accountability and other organisational outcomes (c) explore the role and effectiveness of the audit committee in detail.

Purpose – Many researchers, in several contexts, have investigated the influence of audit committee effectiveness and audit quality variables on reducing the extent of earnings management, and empirical evidence is rather inconsistent. Design/methodology/approach – The aim of this paper is to meta-analyze the results of 58 prior studies that examined whether differences in results are related to moderating effects associated with corporate governance mechanisms or measures of earnings management. Findings – The findings show that the meta-analysis identifies many significant relationships. The independence of the audit committee, its size, expertise and the number of meetings have a negative relationship with earnings management. Similar negative relationships exist between auditor size, specialization and earnings management. Research limitations/implications – This study contributes to the corporate governance literature. Further, recognizing the function of an audit committee and audit quality shows the value of considering an institutional setting in governance research. This study is significant to academic and practitioner literatures, policy makers and professional accounting bodies as it shows that governance reforms promote companies to adopt good governance practices. The results also give useful information to investors in examining the effect of audit committee characteristics and audit quality on earnings quality. Originality/value – This study extends existing research on audit committee and audit quality to oversee both accrual and real earnings management using meta-analysis. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management.

PurposeThis paper aims to examine whether the audit committee moderates the relationship between audit quality and market reactions.Design/methodology/approachUsing fixed effects and the GMM model for robustness, the study used 472 publicly listed firms on South Africa’s Johannesburg stock exchange spanning a period of six years from 2014 to 2019.FindingsResults obtained show that audit quality impacts market reactions through share price and adjusted market returns. And, that the audit committee moderates the relationship between audit quality and market reactions in South Africa’s publicly listed firms. An effective audit committee is expected to play a crucial role in overseeing the audit process, ensuring the independence of auditors and promoting transparency and accountability which in turn impacts asset prices.Research limitations/implicationsThe study implies that governments and regulatory bodies in other developing economies could strengthen regulations about companies’ Acts, how firms regulate themselves and more so audit committees. Firms can also strive to make sure that audit committees are staffed with experts to promote higher audit quality and investor attention to get access to the much-alluded capital.Originality/valueTo the best of the authors’ knowledge, the study adds value by being the first to explore the subject matter of the importance of audit committees in defining audit quality and market reactions in publicly listed firms. The research adds to the body of knowledge on corporate governance and audit quality. It provides a case study specific to the South African context, contributing to the global literature on these topics.

The role of a board of directors is a key mechanism in corporate governance, influencing both the quality of financial statements and audit quality. Prior studies in many countries, have found that female board members play a crucial role in management, contributing to improved audit quality. However, research on the impact of female board members on audit quality remains limited in the context of an advanced emerging economy such as the Thai market. This study investigated the relationship between female board membership and audit quality among listed companies from the Stock Exchange of Thailand (SET). Specifically, the study examines the role of female membership at two levels, specifically the subcommittee (i.e., audit committee) and main committee (i.e., board of directors) level. Discretionary accruals, as measured by the Modified Jones Model (1995), were employed as a proxy for audit quality, while audit fees and audit firm size were also included as additional measures of audit quality. The findings, however, were inconclusive. One possible explanation is the relatively low percentage of female members compared to their male counterparts. Additionally, companies may appoint female board members primarily to meet regulatory requirements or diversity standards, rather than due to recognition of their practical roles and genuine contributions within the organization.

Purpose: To examine the effect of board composition, audit report lag, auditor switching, audit committee and audit tenure on audit quality in companies listed on the Indonesia Stock Exchange. This research is based on several findings of cases of embezzlement of funds and taxes that have occurred in several metal subsector companies and the like, related to the low quality of the resulting financial statements. Methodology: The method used in this research is the quantitative method. The population in this study imcluded manufacturing companies in the metal subsector and the like listed on the IDX in 2019-2023. The sampling technique used in this research is the saturated sampling technique, and the final result of the data sample is 85. The data analysis method uses SPSS software to test the logistic regression analysis method. Results: Based on the results of the analysis using the dummy method, it is concluded that the board composition variable, audit report lag, and audit committee have a significant effect on audit quality, while the auditor switching variable and audit tenure have no significant effect on audit quality. Applications/Originality/Value: The results of this study are hoped to provide benefits to auditors, company management, and the scientific field because this research discusses and provides recommendations on what factors can affect audit quality. As well as this understanding can be used as a recommendation for improving performance and corporate governance. this research is a development of previous research with updated independent variables on board composition and audit committee. From the results of the literature review, it is found that there are still few studies that discuss the impact of board composition on audit quality by measuring the number of boards of directors in the company.