Risk Management Committee, Auditor Choice and Audit Fees

Iman Harymawan,Aditya Aji Prabhawa,Fajar Kristanto Gautama Putra,Mohammad Nasih

doi:10.3390/risks9090156

Abstract

We find that risk management committees and BIG4 audit firms contribute to audit fees. We use observations of 895 companies registered in Indonesia for 2014–2018, and to answer our hypothesis we used ordinary least squares analysis. The results show that BIG4 weakens the relationship between RMC and audit fees. Our study proves that higher demand for audit coverage will occur if there is a risk management committee within the company. As a result, audit fees increase. RMC may demand high-quality external guarantees, but the presence of BIG4 as a moderating variable reduces the relationship between the two variables. We assume that this can happen because auditors can work more efficiently if the company has an RMC, auditor(s) could indirectly reduce the risk because it is partially results from the performance of the RMC. In addition, we also use the robustness test to handle the endogeneity problem with consistent results as OLS. These findings provide evidence for policy makers about the relationship between audit fees and risk management committees.

Highlights

Prior studies document that the presence of risk management committee (RMC) as corporate governance members plays a role in fees paid by the company for audit services (Larasati et al 2019)
This paper aimed to examine the relationship between RMC and audit fees
We aimed to investigate the relationship between Big 4 and the audit fees incurred by the company and, to complete our research, we considered the outcome of Big 4 audit firms auditing a company with RMC against the audit fees incurred by the company

Summary

Introduction

Prior studies document that the presence of risk management committee (RMC) as corporate governance members plays a role in fees paid by the company for audit services (Larasati et al 2019). Abdullah and Said (2019) show that the RMC has an effective role in the control, detection, and interference of risk, in terms of monetary risk. Various risks such as financial, operational, reputation, regulatory, and information risk are organizations have to face (Burlando 1990; KPMG 2001). A few analysis studies have shown proof of the connection between the RMC and audit results (Ahmed and Che-Ahmad 2016)

Objectives

Methods

Findings

Discussion

Conclusion