Abstract
The aim of the paper is to examine the formation of a separate risk management committee (RMC) and its effect on the modified audit report among the non-banking and financial companies listed in Bursa Malaysia. Data was collected from the annual reports of a sample of 300 companies from 2004 until 2009. Both descriptive and multivariate analyses were employed to address the research objectives. The results indicate that a separate RMC is negatively related with the acceptance of the modified audit report. Further, the RMC’s members with independent non-executive status and members with accounting and financial background will also probably reduce the acceptance of the modified audit report. However, losses recorded for previous financial years are likely to increase the issuance of modified audit report by the auditor. The period of auditor engagement with the client and client size will also affect the modified audit report. The findings provide empirical evidence on the development and importance of a separate RMC for the modified audit report.
Highlights
In the risk management committee structure are the risk management function combined with the audit committee and the existence of separate risk management committee both of which are the sub-committees of the board of directors (BOD)
The formation of a separate risk management committee (RMC) as a board committee is able to enhance the effectiveness of the risk oversight function by the BOD as reported in the result of this study where the existence of a separate RMC gives impact to the company not to receive a modified audit opinion
The result documented that the existence of a separate risk management committee (RMC) affects the issuance of a modified audit report by the auditors
Summary
In the risk management committee structure are the risk management function combined with the audit committee (known as combined RMC) and the existence of separate risk management committee (known as separate RMC) both of which are the sub-committees of the board of directors (BOD). The objective of this study is to examine whether the existence of a separate RMC gives any effect on the modified audit report on risk issues. The audit committee performs the risk management function (Yatim, 2009) and it is a challenge to this committee to add a new job portfolio. Zaman (2001) added that it was unreasonable to expect the audit committee to perform a new job given their lack of time and expertise. The formation of a separate RMC which focuses only on the risks profile of the company will be seen a help to manage the risks effectively and to improve company performance (Liew, Mat Zain, & Jaffar, 2012)
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
