Impact of External Auditing Quality and Audit Committees on Accounting Conservatism and the Performance of Industrial Firms Listed at the Amman Stock Exchange

Mahmod Al-Rawashdeh Abdalwahab,Riham Fathi Alkabbji

doi:10.5430/ijfr.v11n4p556

Abstract

This study aims to investigate the impact of external auditing quality and audit committees on accounting conservatism and the performance of industrial firms listed at the Amman Stock Exchange. The study has relied on the industrial sector which comprised of 70 industrial firms, while the sample size comprised 54 firms. Audit quality has been addressed in terms of audit quality features (communication with world audit offices, keep client period, audit fees, accounting specialist in the customer industry), while audit committees quality has been analyzed (audit committees independence, audit committees expertise, audit committees meetings). The accruals model has been used to measure accounting conservatism. The firm`s performance has been measured through its market value. The study concluded that audit committees have no impact on accounting conservatism and firm`s performance, while audit quality features have a positive impact on accounting conservatism and firm`s performance. The study has recommended the need to activate the role of audit committees in public shareholding industrial firms since they positively have an impact on raising audit efficiency and control the regulate the firm`s internal control system.

Highlights

This study investigates the impact of audit committees and external auditing quality on accounting conservatism, and the role of accounting conservatism in raising the market value of public shareholding industrial firms
It is noted from the table 4 that the null hypothesis has been accepted for the first and fourth hypotheses relating to the impact of audit committees on accounting conservatism H1 and on the firms market performance H4 at the level of significance 10% where these results indicated that the presence of audit committees have no impact on accounting conservatism and the firms market performance
Whereas the analysis results of the effectiveness of audit committees indicate that effectiveness is found in the independence and financial expertise of the committee members, while the effectiveness and efficiency of the audit committee is rather weak, since meetings of committees in most firms is less than 5 times a year

Summary

Introduction

This study investigates the impact of audit committees and external auditing quality on accounting conservatism, and the role of accounting conservatism in raising the market value of public shareholding industrial firms. Audit committees and external auditing aim at reducing the gap of expectations that investors undergo continuously, providing more accurate data to financial statements users since the main item for financial statements users lies in the accounting net profit, and the variety of tools used in preparing such financial reports affect profits results. The greater the credibility and transparency, the higher the firm performance, where audit committees and external auditing quality are the main factors increasing this credibility and transparency, affecting accounting conservatism which aim at raising transparency, and eventually affecting positively on the firm performance and value. The following question is formulated: Do audit committees and external auditing quality have an impact on the firms performance in the light of accounting conservatism?

Objectives

Methods

Findings

Conclusion