Navigating Independence and Excellence: How Audit Committee Traits Shape Earnings Quality in Top Sectors in Malaysia?

Despiteattention given to ERM, particularly after the global financial crisis, Malaysia is still lagging behind in ERM implementation. The development and application of ERM is rather limited in practice. Policymakers, regulators and academics identify the combination of weaknesses in governance structures and failures in risk management as the key causes of the financial crisis. Strength of business performance and growth, depend on both ERM and corporate governance. Hence, this study investigates the influence of corporate governance on enterprise risk management (ERM) implementation. The subject of investigation is non-financial public listed companies (PLCs) of high-risk sectors in Malaysia. The high-risk sectors are utility, energy, and telecommunication and media. The dependent variable is ERM implementation proxy by ERM Score. The independent variable is corporate governance proxy by size of BOD, BOD independence, audit committee (AC) independence, AC financial education, size of risk committee (RC) and RC independence. Data are collected for 2016-2017 and analyze using regression analysis. The study finds size of BOD has positive significant relationship with ERM implementation. While, sector has significant negative relationship with ERM implementation. In the context of Malaysian PLCs of high-risk sectors, corporate governance influence ERM implementation. The size of the board is the significant driver “tone from the top” for ERM implementation. This conclusion leads to recommendations to regulators to emphasize the importance of board members’ roles and responsibilities in providing risk oversight. In addition, a policy on minimum and maximum number of board members need to be develop in order to ensure effective risk management oversight.

This study examines the relationship between internal audit functions and financial management performance in the public sector in Malaysia. The internal auditor is entrusted with a monitoring responsibility to ensure the integrity of the management of public funds. The need for effective monitoring by an internal auditor is increasing as a result of the Auditor General Report concerning weaknesses in the financial management of the public sector. The present study conducts a survey on 80 internal audit units of government agencies and organisations. Financial management performance is measured using the Financial Management Accountability Index issued by the National Audit Department. The results show that the effectiveness of internal audits in enhancing the financial management of public sector relates significantly to the competency of internal auditors, the size of internal audit units, and cooperation between the internal auditors and audit committees. The findings have policy implications concerning the staffing and training programmes of internal audit units that will help improve financial management performance in the public sector.

Fraud Detection and Prevention Methods in the Malaysian Public Sector: Accountants’ and Internal Auditors’ Perceptions

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.

Earnings quality is an important factor in the banking industry that has a significant impact on the health and sustainability of a company. The purpose of this study was to examine the effect of the Independent Board of Commissioners, Audit Committee, and Accounting Conservatism on Earnings Quality in the Indonesian banking industry. The independent variables used include the Independent Board of Commissioners, Audit Committee, and Accounting Conservatism. The dependent variable is earnings quality as measured by discretionary accruals. The data in this study is secondary data from 17 banks or companies listed on the Indonesia Stock Exchange in 2013-2017. The population for this study were banking companies in Indonesia that were listed on the Indonesia Stock Exchange (IDX) in 2013-2017, selected based on a sampling technique using purposive sampling. Methods of data analysis using multiple linear regression tests. The results of the study show that the independent board of commissioners has a positive effect on earnings quality. Meanwhile, conservatism has a negative effect on earnings quality. Furthermore, the audit committee has no effect on earnings quality.

Research aims: This study investigates the influence of audit committee characteristics (size, expertise, and gender diversity) on earnings quality with audit quality as a moderating factor across various stages of the corporate life cycle. Based on life cycle theory, this study posits that each corporate life cycle stage presents different results.Design/Methodology/Approach: A purposive sampling method was employed, resulting in 395 observations from infrastructure, property, and real estate from 2018 to 2022. The classification of the corporate life cycle relies on Dickinson's (2011) model, resulting in 66, 78, 153, and 98 observations for the introduction, growth, maturity, and decline stages.Research findings: The findings reveal that audit committee expertise and gender positively affect discretionary accruals for the full sample. Audit committee size positively affects discretionary accruals in mature firms, while gender enhances discretionary accruals in both growth and mature firms. Audit quality can moderate the relationship between audit committee expertise and earnings quality in the full sample and growth firms, and also moderate the effect of gender on earnings quality in the full sample, growth, and mature firms.Theoretical contribution/ Originality: This study expands the earnings quality literature by integrating corporate life cycle theory into analyzing the dynamic role of audit committees and audit quality.Practitioner/Policy implication: The results highlight the importance of the corporate life cycle in optimizing the audit committee to enhance earnings quality.Research Limitations/Implications: This research employs a dummy variable for gender due to the limited representation of women on audit committees and limited observations at several life cycle stages.

Abstract: Information on earnings is an important earnings quality metric in financial reporting. Poor disclosure of such information could lead to poor information asymmetry, which often triggers negative reactions from the market and stakeholders. Therefore, this study investigates the relationship between audit committee attributes and earnings quality among listed financial services firms in Nigeria. The study conducts robust regression analysis with 11-year panel data for 41 listed firms. Our findings reveal the effect of audit committee attributes on earnings quality. In specific terms, the findings of the study reveal that audit committee independence, audit committee accounting expertise, the expertise of women on the audit committee, and the audit committee meetings improve earnings quality. The findings of the study confirm the code of corporate governance in Nigeria and agency theory postulations. The study makes some appreciable contributions to the literature by examining gender diversity beyond women’s inclusion on the committee to include expertise, examining audit committee independence from the point of view of the representatives of the shareholders, and earnings quality from a long-term sustainable point of view. Keywords: Audit Committee Independence; Audit Committee Size; Earnings Predictability; Earnings Smoothen; Shareholders’ Representatives

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.

This study aims to provide empirical evidence of the influence of the relationship between earnings persistence, dividend payout ratio (DPR), corporate governance mechanisms (consisting of the board of directors, board of commissioners and audit committee) and the allocation of inter-period taxes on the quality of earnings in manufacturing companies listed on the Indonesian stock exchange in 2017-2019. The population in this study were 185 manufacturing companies listed on the IDX in 2017- 2019. The sample selection was done by using purposive sampling method, in order to obtain 132 research samples. The method used to analyze the data in this study is multiple linear regression with the Statistical Package for Social Sciences (SPSS) program version 21. The results of the study indicate that earnings persistence (X1) has no significant effect on earnings quality, Dividend payout ratio (X2) has a significant effect on earnings quality, The board of directors (X3) has a significant effect on earnings quality, The board of commissioners (X4) has no significant effect on earnings quality, The audit committee (X5) has no significant effect on earnings quality, Inter-period tax allocation (X6) has no significant effect on earnings quality. Keywords : Earnings persistence, dividend payout ratio, board of directors, board of commissioners, audit committee, tax allocation, earnings quality.

Board characteristics, ownership structure and earnings quality: Malaysian evidence

Purpose: The aims of this study are to investigate the joint effects of financial experts on audit committees (ACs) and industry expert auditors on earnings quality, and to investigate whether the joint effects differ based on subtypes of financial experts on ACs and the mixture of those subtypes. Design/methodology/approach: This study measures AC f inancial expertise and auditor industrial expertise using indicator variables. To measure the quality of earnings, this study employs the approach of Kothari et al. (2005). Findings: The study finds evidence that only the interaction between AC financial expertise and auditor industrial expertise has a positive effect on earnings quality. Specifically, earnings quality improves only when firms have accounting professors or finance experts (excluding finance professors) on ACs, and at the same time, when firms receive external audit from an industry specialist auditor. The study also finds that the positive association becomes obvious when ACs have both accounting and non-accounting experts. More importantly, the positive association is stronger when ACs have both non-accounting experts and more than one type of accounting experts. These results suggest that it is crucial that internal and external audit functions work cooperatively rather than separately, and that ACs include both non-accounting experts and several types of accounting experts. Research limitations/implications: The effects of AC financial expertise on accounting information quality may vary depending on how ACs are actually operated. Thus, it would be worthwhile for future research to explore the effectiveness of ACs in consideration of the operation of ACs. Originality/value: Contrary to prior research, this study examines the interplay of AC financial experts and industry specialist auditors. In addition, this study examines the interplay by using subtypes of financial experts on ACs and the combination of those subtypes. This study can be valuable to policy makers, academicians and investors by providing a more comprehensive view of the effectiveness of internal and external audits.

Profit measurement requires a high level of quality because it is considered as a guide for assessing investment and making decisions. This study aims to analyze the effect of the audit committee, accounting conservatism, leverage, and earnings growth on earnings quality. Total accruals are used as a proxy for earnings quality. The sample selection of 34 companies in the consumer goods industry used purposive sampling method. For the purposes of data analysis, secondary data is used in the form of financial statements for the 2015-2019 period. Panel data regression model was used for data analysis. The results showed that the audit committee had no effect on earnings quality, conservatism had a positive effect on earnings quality, while leverage and earnings growth had a negative effect on earnings quality.
 Keywords: Audit Committee; Accounting Conservatism; Leverage; Earnings Growth; Earnings Quality.

The objective of the study was to examine the effect of capital structure and good corporate governance (GCG) on the earnings quality. The GCG variable are proxied by audit committees, independent commissioners, managerial ownership, and institutional ownership. The earnings quality measured by using Capital Adequacy Ratio (CAR) indicator with Earning Response Coeficient (ERC). The data was collected from the financial statements of the manufacture companies that listed at Indonesia Stock Exchange in the period between 2009 and 2013. By using purposive sampling and balanced panel data, there are 22 companies were selected as the sample. Multiple linier regression model is used to test the hypothesis The results of this study are capital structure, independent commissioners, audit committees, managerial ownership, and institutional ownership affected on the earnings quality simultaneously. Capital structure partially affected on the earnings quality. The audit committees, independent commissioners, managerial ownership, and institutional ownership affected on the earnings quality partially have an effect on the earnings quality. Keywords: capital structure, good corporate governance, earnings quality, ERC

This research aims to evaluate the effectiveness of Audit Committee (AC) roles (AC) on firm values (FV) and earning quality (EQ) as moderating variable. The roles of AC were measured by the proficiency, expertise, and competence shown by the members of the committee in having a background in accounting or other finance related courses, meeting the frequency of AC and in the size of AC. EQ was measured by using the earning management (EM) while the FV was measured by using the Tobin’s Q. The populations of this research were members of the family businesses listed on Indonesia Stock Exchange (IDX) from 2008 to 2016. The sampling technique used in selecting the data used is the purposive random sampling method. Multiple regression analysis was used to test the model of the study. The result obtained, effectiveness of AC roles was unable to prove its influence to FV. This research was also unable to prove the ability of EQ to moderate the influence of AC on FV.

This study aims at examining the effect of the audit committee with accounting and finance expertise on the earnings quality of manufacturing companies in Indonesia. The earnings quality measurement uses the absolute value of discretionary accrual. This study uses three measurements of discretionary accruals, the Jones model (Jones, 1991), the modified Jones (Dechow, Sloan, & Sweeney, 1995), and the Kasznik models (Kasznik, 1999). Further, the current study refers to Badolato, Donelson, and Ege (2014) to identify the audit committee expertise. The data were collected from the Indonesia Stock Exchange (IDX) between 2015 and 2017 with 331 observations. The results showed that audit committees’ characteristics with both accounting and finance expertise have a negative effect on discretionary accrual. Thus, audit committees’ members with both accounting and finance expertise have reduced the level of discretionary accruals. The result is consistent using three measurements of discretionary accruals. Therefore, the audit committee members with both accounting and finance expertise have a positive effect on improving the quality of firms’ earnings. Our result is robust to different methods of discretionary accrual measurement. This study may be very helpful for those audit committees seeking to improve their composition and way of working. In other words, the findings of this study are potentially relevant to both audit committees and policy-makers