Audit Committee Members Research Articles

Auditors’ Trust in Audit Committees and Audit Quality

ABSTRACTIn light of global advancements in corporate governance, it is imperative for external auditors and audit committees to engage in communication and interactions to ensure that external audits are conducted to a high standard and quality. While many studies report that audit committee expertise, diligence, and independence are associated with monitoring, often they do not provide explanation of the mechanisms through which these happen. There is limited research on how external auditors’ trust in audit committees affects their interactions and therefore audit quality. This paper examines external auditors’ trust and their interactions with audit committees. We find that external auditors’ perceptions of audit committee members’ competence, goodwill, and integrity shape their trust in audit committees. Overall, our findings suggest that auditors’ trust in audit committees enhances their perception of the quality of their interactions, affects information sharing and the conduct of the audit, and thus helps to improve the quality of auditing.

The Effect Of Audit Committee And Capital Structure On Financial Performance In Energy Sector Companies Listed On The Indonesia Stock Exchange

The purpose of this study is to obtain empirical evidence regarding the influence of independent variables consisting of audit committee size, audit committee independence, audit committee financial expertise and capital structure on financial performance. The companies used in this study are energy sector companies listed on the Indonesia Stock Exchange (IDX) from 2018-2023. The number of research samples was 17 companies with a total of 102 data that met the criteria using the purposive sampling method. The results of the study obtained are that the size of the audit committee and capital structure have a positive significant effect on financial performance. Meanwhile, the variables of the independence of the audit committee and the financial expertise of the audit committee have no effect on financial performance. This study builds on previous research by adding capital structure variables as independent variables. The implication of this research that has been carried out is to provide direction for financial managers in terms of selecting competent audit committee members and paying attention to the management of the capital structure in order to achieve the company's goals. For investors, it is best to choose a company that has an effective audit committee and a balanced capital structure.

The power of financial literacy: paving a clear path for the influence of board diversity on intellectual capital disclosure

PurposeUtilizing a multi-theoretical framework, this study aims to investigate the impact of board gender and nationality diversity on the extent of intellectual capital disclosure. Additionally, it seeks to explore the moderating role of financial literacy among audit committee members on the aforementioned relationship.Design/methodology/approachTo empirically test the study’s framework, a panel dataset of listed firms on the Palestine Stock Exchange (PEX) spanning 12 years (2010–2022) was utilized. To address potential endogeneity issues and ensure robust findings, a battery of econometric estimators was employed, including ordinary least squares (OLS), one-step system generalized method of moments (GMM), lagged independent variables and a sub-index model.FindingsThe study findings make a significant contribution to existing intellectual capital literature. Specifically, the results reveal that the positive influence of board gender and nationality diversity on the extent of corporate intellectual capital disclosure is stronger when there is a high proportion of audit committee financial literacy. Additionally, the study distinguishes between overall index and sub-index analyses. Interestingly, the findings from the sub-index analysis, focusing on structural capital, relational capital and human capital, are somewhat similar to the results of the full index analysis.Originality/valueTo the best of the authors’ knowledge, this study represents the first empirical attempt to uncover the impact of financial literacy among audit committee members on the relationship between board diversity and intellectual capital disclosure.

The Impact of Audit Quality on the Financial Performance of The Listed Jordanian Chemical Company Sector

The study aims to find out the impact of audit quality on the financial performance of the chemical company sector, to explore how audit quality, especially focus on auditor independence and the size of the audit committee, affects the financial performance (ROA, ROE, EPS) of the Jordanian chemical industries sector listed on the Amman Stock Exchange. In order to examine the data a questionnaire was distributed to study sample consists of (59) employees working within chemical companies, (48) from it valid for statistical analysis where the number of chemical companies reached (8). Ordinary Simple Linear regression method employed in the analysis of data. The study revealed that auditor’s independence has a positive and significant effect on financial performance of Chemical Company Sector. It was concluded that aspect of audit quality influence financial performance of Chemical Company. The study recommended Auditor’s independence should be increased greatly in order to enhance financial performance (ROA, ROE, EPS) of the Chemical Company Sector, by improving internal control of the company, also, Always Conduct integrity and appropriate usage tests for auditors. Shareholder should control the committee size, by controlling the audit committee members, which will reflect positively on the audit report quality.

Effect of perceived value on customer satisfaction on audit services of financial statements: Case study of auditing companies in Hanoi

This study investigates the impact of perceived value on customer satisfaction on the financial statement audit services of independent auditing firms in Hanoi.The study used quantitative research design, interpretation, and use of a survey questionnaire with a Likert-type scale to measure perceived value (including quality value, value based on price, human value, emotional value, and social value) and customer satisfaction. The survey was distributed to a random sample of 302 respondents, including CFOs; Accounting Managers; Business Owners; Audit Committee Members; and Internal Auditors of 168 selected client companies of different industries and sizes. Regression results with a standardized beta coefficient show that all five dimensions of perceived value have a positive impact on customer satisfaction, with Quality Value and Emotional Value having the strongest impact. Based on the research results, some recommendations are made for auditing companies such as prioritizing quality, improving emotional value, optimizing prices, building strong relationships with customers and leveraging social value to increase customer satisfaction. customer satisfaction on financial reporting audit services, so that auditing companies can improve competitive advantage and build long-term relationships with customers

Do Big 4 Firms Provide Higher Audit Quality in Government Audits? Evidence from Canadian Provincial Consolidated Financial Statements

SUMMARY Audit quality is influenced by both the demand for and the supply of audits. A major challenge in audit quality research involves isolating supply effects. The audits of Canadian provincial governmental entities present an appealing setting, where there is low variation in the demand for audit quality. Our analysis, employing various audit quality metrics, reveals that Big 4 firms underperform both government auditors and non-Big 4 firms in our setting. We find robust evidence that less government audit knowledge is a key channel through which Big 4 auditors underperform. Additionally, the weaker performance of Big 4 firms may be due to lower effort. Insights from interviews with government audit executives and audit committee members provide evidence supporting the quantitative results. Our results are robust to propensity score matching and to tests that address alternative explanations. Our findings have important implications for governments, audit committees, and auditors in the government sector. JEL Codes: M41; M42.

Is the Nexus between Gender Diversity and Firm Financial Distress Moderated by CEO Duality?

This study examines the impact of gender diversity in the positions of board commissioners, executive directors, and audit committee members on the financial performance of firms experiencing financial trouble. It also evaluates whether the presence of a CEO with multiple responsibilities moderates this relationship. The analysis encompassed 224 publicly traded companies from the non-financial sector, spanning the years 2012 to 2021. The study employed the dynamic panel model system GMM to address issues of endogeneity, simultaneity, and heterogeneity in the data. The findings indicate that the presence of women on supervisory boards and in senior positions has a substantial impact. Companies with a higher number of female board members have reduced financial hardship among Malaysian listed enterprises. Female directors exhibit a greater level of caution and risk aversion while participating in management choices, which is a significant conclusion. Research indicates that the majority of financial variables are inherently endogenous, so dynamic models are better suited for analyzing the interaction between these variables. This study also presents the notable correlation between gender diversity on boards of management, CEO duality, and financial difficulty.

THE IMPACT OF AUDIT COMMITTEE CHARACTERISTICS ON THE SHARE HOLDER VALUE CREATION: EVIDENCE FROM INDONESIA

This research seeks to investigate the characteristics of company performance audit committees and their impact on company value. We conducted an analysis of family companies in Indonesia, especially family companies that are over 20 years old. We analyzed the data we collected using multiple regression. The research results provide quite strong empirical evidence that the frequency of audit committee meetings and the company's financial performance have positive significance in increasing shareholder value. This research provides implications for family companies, especially for maintaining good financial performance and maintaining the independence of the audit committee through the involvement of external audit committee members. It is hoped that the selected audit committee will not come from the family or have any family affiliation with the companyKeywords: audit committee characteristics, financial performance, shareholder value.

Audit committee member busyness and risk factor disclosure

Audit committees in the U.S. oversee risk management within organizations, including oversight of the disclosure of risk factors in periodic filings. Because audit committees have become increasingly over-burdened, we examine the impact of the busyness of audit committee members, measured via members’ service on other boards, on risk factor disclosures. We find firms with busy members issue disclosures that are of lower quality (i.e., less readable and less focused on firm fundamentals). Further, we find that firms with busy members are more likely to issue timely updates to disclosures. However, these updates are more likely to be vague—implying they are inconsequential to the market. We find these results are primarily driven by service in other non-audit committee roles. In additional cross-sectional tests, we find that our results are strongest when there is more uncertainty or complexity in the business environment. Finally, additional specifications and tests show that our results are robust to concerns related to endogeneity. Overall, we find that the busyness of audit committee members has important implications for risk factor disclosures.

Impact of corporate governance on tax avoidance

In light of the pivotal role that taxes play as a primary source of income, particularly within developing economies, this study aims to examine the influence of various corporate governance (CG) mechanisms on tax avoidance. We employ three proxies to measure tax avoidance or tax management within companies listed on the Tehran Stock Exchange (TSE). The CG mechanisms under scrutiny encompass board size and independence, CEO duality, auditor type, common stock ratio of at least 5% to total stock, managers' common stock holdings about total stock, gender diversity, manager ownership value, board meeting frequency, CEO stock ownership percentage, institutional shareholders' stock holdings, audit committee membership, and financial specialization. This research investigates 192 companies listed on the TSE, utilizing data available on the TSE website from 2011 to 2021. Our findings indicate that while several CG mechanisms, such as board size and independence, audit firm size, gender diversity, institutional ownership, and the specialization of audit committee members, serve to reduce tax avoidance, CEO duality exacerbates it. Moreover, profitability, financial leverage, and capital significantly inhibit tax avoidance. In contrast, the return on assets (ROA), economic growth, and inflation have a pronounced positive association with tax avoidance. A notable constraint of this study lies in its exclusive focus on publicly listed firms, driven by the availability of relevant information. This study offers valuable insights into the three dimensions of tax avoidance and their interaction with CG mechanisms, with implications for performance monitoring.

Ownership Structure and Financial Reporting Quality of Listed Non Financial Firms in Nigerian: The Moderating Role of Audit Committee

The aim of this study is to evaluate the moderating role of audit committee on the relationship between ownership structure and financial reporting quality of listed non-financial firms in Nigeria. The study used annual reports from 41 listed non-financial firms in Nigeria between 2010 to 2021 period. The study used causal research design approach. The analysis was done using descriptive statistics and multiple regression technique using Generalised Method of Moment (GMM). The findings of the study show that there is significant relationship between ownership structure and financial reporting quality and audit committee can effectively moderate their relationship. The study therefore, rejects all the null hypotheses formulated. The implications of the study are that regulators and policy makers, may encourage more shareholders representation in audit committee of listed companies and mandate financial expertise to all audit committee members. The study concludes that presence of institutional, managerial and foreign ownerships as well as sound audit committee are important for improving firms' financial reporting quality. The study therefore, recommends that in order to enhance the reporting quality, management of listed non-financial firms in Nigeria should ensure that they have effective and functional audit committee. The ownership structure should also be strengthened in order to assist in improving financial reporting quality and also improve relevance and reliability of annual reports and make it easier for the stakeholders to make appropriate decisions relevant to their needs.

Politically connected audit committees and ESG reporting

This study investigates the impact of audit committees with political connections on environmental, social, and governance (ESG) reporting. Drawing from reputational cost theory, it hypothesizes that personal political affiliations of audit committee members positively influence ESG reporting quality. Analyzing data from companies listed on the Indonesia Stock Exchange between 2018 and 2022, the findings reveal that companies with politically connected audit committees exhibit higher levels of ESG reporting compared to their counterparts without such connections. The study highlights that audit committees with political ties are subject to increased litigation risks and reputational costs.

Audit committees in transition: evaluating the effectiveness of corporate governance in Libya’s banking sector

PurposeThe purpose of this research paper is to investigate the perspectives of key stakeholders on strategies to improve the effectiveness of audit committees (ACs) in African economies, with a specific focus on the Libyan banking sector.Design/methodology/approachThe study uses a mixed-methods approach, combining questionnaire surveys and semi-structured interviews. The data collection process involves gathering responses from participants through questionnaires and conducting in-depth interviews to gain deeper insights into the subject matter.FindingsThe research findings highlight several key points. Firstly, fortifying Libya’s accounting and auditing profession emerges as the most widely endorsed suggestion for enhancing AC effectiveness. Secondly, participants identified various actions that can strengthen ACs, including appointing members with financial expertise, refining the legal requirements governing AC responsibilities, securing board support, enhancing Libya’s legal and regulatory framework, adequately compensating AC members and reducing government intervention in AC practices.Originality/valueThis research contributes to the field of corporate governance by providing valuable insights into the perspectives of stakeholders on enhancing AC effectiveness in the Libyan banking sector, within the broader context of African economies. The findings offer actionable plans for regulators and policymakers seeking to improve AC effectiveness in Libya.

Firm sensitivity to changes in policy uncertainty and its impact on audit pricing

PurposeThis paper aims to examine how a firm’s exposure to economic policy uncertainty affects the auditors’ perceptions of financial reporting risk. Firms that are more sensitive to policy uncertainty are predicted to engage in more earnings management because these firms are more likely to experience greater uncertainty in future operations. Audit fees will reflect this reporting risk. On the other hand, auditors might feel more fee pressure from policy-sensitive firms because firms are more inclined to reduce spending in the face of uncertainty and subsequently charge lower fees.Design/methodology/approachThe author tests my hypothesis using U.S. data on audit fees and client characteristics of public companies between the years 2001 and 2021. The author estimates a standard audit fee model based on the audit fee literature (Hay et al., 2006) while also including the two policy sensitivity measures. This study uses panel data methods that allow time-series analyses, providing a powerful setting to test dynamic audit fee adjustment to improve the understanding of the audit market.FindingsThe results suggest that audit fee is higher for policy-sensitive firms than for policy-neutral firms. These results are robust to various proxies of policy sensitivity and various specifications designed to mitigate the endogeneity concerns. The study provides assurance that on average, auditor pricing reflects client risk adequately, mitigating the concern that auditors give in to fee pressure and compromise audit quality as a result.Research limitations/implicationsWhile the findings from this study should be of value to regulators and academics seeking to understand audit activities amid escalating macroeconomic uncertainty, when interpreting these results, several limitations must be considered. The study does not examine how external auditors evaluate risks tied to policy uncertainty. A comprehensive understanding of how and why external auditors respond to heightened policy uncertainty faced by firms could be better achieved through interviews with external auditors and audit committee members. In addition, while this study posits that auditors adjust their approach in response to changes in policy uncertainty, largely due to potential shifts in the risks of material misstatement, there might be additional factors at play that warrant higher audit fees post a change in policy uncertainty. For instance, specific policy changes may give rise to new risks or modify existing ones, thereby precipitating increased scrutiny of records and procedures as company directors’ demand. These aspects offer potential avenues for future research.Practical implicationsThis study underscores the significant role of policy sensitivity in determining audit fees and audit quality. Policy-sensitive firms present unique complexities and potential risks that require additional effort and vigilance from auditors. Auditors must develop a specialized understanding of sectors prone to policy fluctuations to navigate these unique challenges effectively. In addition, the role of professional standards boards and regulators in establishing guidelines for auditing policy-sensitive firms cannot be understated. Such guidelines could lead to more consistent audit practices and improved audit quality. Finally, by recognizing and effectively responding to the policy sensitivity of client firms, audit firms can mitigate their own risks, strengthen public trust and enhance the reliability of financial reports.Originality/valueFirst, this study adds to an emerging stream of auditing literature that focuses on how audit fees interact with a firm’s external environment by providing evidence of an unexplored implication, a firm-specific policy sensitivity. Second, my main construct, policy sensitivity, provides two distinct advantages over other variables used in prior studies that explore the relationship between audit fees and external firm environments. Third, this study answers the calls for research by De Villiers et al. (2013, p. 3), who identified the cost behavior of audit fees, especially over time, as an area not well understood.

PENGARUH FEE AUDIT, FINANCIAL DISTRESS, KOMISARIS INDEPENDEN, DAN KOMITE AUDIT TERHADAP INTEGRITAS LAPORAN KEUANGAN

This research aims to examine the influence of audit fees, financial distress, independent commissioners and audit committees on the integrity of financial reports. Audit fees are measured using the natural logarithm of professional fees, financial distress is measured using the debt to equity ratio, independent commissioners are measured using the ratio of the number of members of the company's independent commissioners to the number of members of the company's board of commissioners, audit committees are measured using the comparison of the number of audit committees that come from from the independent committee with the number of audit committee members and the integrity of the financial reports as measured using the market to book ratio. This type of research is quantitative. Based on purposive sampling, the number of sample companies was 29 companies with an observation period of 5 years, so the total sample was 145 data on the property and real estate sectors listed on the Indonesia Stock Exchange (BEI) during the 2018-2022 period. The data analysis used in this research is a panel data regression model using E-Views 12. The results of this research show that partially audit fees and audit committees have no effect on the integrity of financial reports. Financial distress and independent commissioners have a significant effect on the integrity of financial reports. Meanwhile, simultaneously audit fees, financial distress, independent commissioners and audit committees influence the integrity of financial reports. Keywords: Financial Statement Integrity, Audit Fees, Financial Distress, Independent Commissioner, Audit Committee.

The Competence of Audit Committee Members concerning the External Audit Ethics

The Competence of Audit Committee Members concerning the External Audit Ethics

The moderating role of board gender diversity on the relationship between audit committee characteristics and financial performance: evidence from Egypt

Purpose The purpose of this paper is to investigate whether audit committee characteristics, in particular audit committee size, audit committee activity and audit committee gender diversity, are associated with financial performance in Egyptian banks. The second purpose of this paper is to explore the moderating role of board gender diversity on the relationship between audit committee characteristics and financial performance. Design/methodology/approach A multiple regression analysis is used to estimate the moderating role of board gender diversity on the relationship between audit committee characteristics and financial performance of a sample of Egyptian banks during the period between 2018 and 2022. Findings The results indicate that audit committee size has a negative and insignificant effect impact on return on assets (ROA) and return on equity (ROE), respectively. The results also indicate that the audit committee gender diversity has a significant positive impact on ROA and ROE, respectively. Regarding audit committee activity, the number of board meetings has a negative and insignificant effect on ROA and ROE, respectively. Regarding gender diversity as a moderating variable, in general there is a positive effect of gender diversity on the relationship between audit committee characteristics and financial performance. Research limitations/implications The study was limited to 20 banks in one country, but it sets the tone for future empirical research on this subject matter. The study also relied on one moderating variable, which is board gender diversity. This study provides an avenue for future research in the area of corporate governance and financial performance in other emerging countries, especially other African countries. Practical implications This study provides useful insights for managers and policymakers to better understand which audit committee characteristics can best encourage a company to improve financial performance. Furthermore, regulators should ensure that banks strictly adhere to corporate governance principles to build a strong banking industry capable of achieving economic development. Social implications Banks will benefit equally from valuable qualities across demographic groupings in society by having females on the audit committee and appropriate audit committee meetings. Additionally, if audit committee members are correctly selected, banks with more females in audit committee and suitable audit committee meetings can successfully contribute to strengthening financial performance and social welfare of diverse segments of society. A culture of good banking governance must emerge to improve bank financial stability and, as a result, greater stability and economic growth. Originality/value To the best of the authors’ knowledge, the study is, perhaps, the first to examine the moderating role of board gender diversity on the relationship between audit committee characteristics and financial performance in Egyptian banks. This study adds to the literature by investigating such an issue in a developing economy that operates in a different context than those in developed countries.

Does the audit committee member’s accounting experience associated with key audit matter types?

Does the audit committee member’s accounting experience associated with key audit matter types?

Lead Independent Directors and Internal Information Environment

ABSTRACTResearch Question/IssueThis study explores the relationship between the presence of a lead independent director (LID) and firms' internal information environment. LIDs are elected independent members of the board who perform key duties for the independent directors and the board, including reviewing and approving board meeting agendas, chairing non‐executive board meetings, and acting as a liaison between the CEO and other independent directors. We hypothesize that LID presence lowers information barriers between the CEO and the rest of the board members, enabling more rapid information acquisition and integration and enhancing the internal information environment of the firm.Research Findings/InsightsUsing a sample of US publicly listed companies from 2001 to 2019, we document that LID presence on the board is positively associated with proxies of internal information quality that reflect better information acquisition and information integration: accuracy and precision of management earnings forecasts, speed of earnings announcement, and absence of material weaknesses in internal controls. These results are robust to alternative model specifications, including entropy balancing, Heckman two‐step correction for self‐selection bias, firm fixed effects, and placebo tests. Further analyses suggest that LIDs with financial expertise and audit committee memberships are more effective in positively influencing internal information quality. We also show that LID presence is positively associated with several proxies of external information quality.Theoretical/Academic ImplicationsWe build on agency theory to argue that LIDs improve internal information quality by reinforcing the information quality benefits of unified leadership while mitigating potential compromises in information quality arising from entrenchment. Similarly, we use arguments emanating from the novel strategic leadership systems theory to posit that a LID appointment facilitates the tasks of the CEO and the board, enhancing the effectiveness of both groups in their respective roles: the CEO in making operating and investment decisions and the board in strengthening oversight while bringing cohesion in their shared role of strategy visioning and implementation.Practitioner/Policy ImplicationsOur findings suggest that there is scope for shareholders to consider LID appointments as an addition to their firms' corporate governance structures to enhance the internal information environment and decision‐making efficiency. Policymakers can also encourage LID appointments on the board when promoting best practices in corporate governance through regulatory guidelines.

The impact of audit committee dimensions on financial reporting efficiency of limited partnership companies listed on the Amman Stock exchange

Currently, the Jordanian economy needs more investment due to the growing financial deficit facing the Jordanian state. Therefore, this study came to increase investors' trust in financial reports issued by Jordanian companies to attract more investments. Based on that, this study will investigate the impact of audit committee dimensions on the efficiency of financial reports of limited partnership companies listed on the Amman Stock Exchange. The data were collected from financial reports issued by 52 limited partnership companies for the year 2021. The study used multiple regression to test the hypotheses. Based on the findings, audit committee dimensions explained the variation in financial reports' efficiency which reached 0.629. The audit committee members' size does not significantly affect the financial reports' efficiency. The significance reached 0.287. However, the knowledge of financial management has a significant positive effect on financial report efficiency; the significance reached 0.000 and the effect volume arrived at 0.699. Also, the findings showed that audit committee meetings have a greater effect on financial reporting efficiency than financial management knowledge. The impact was significantly positive, arriving at 0.790, while the significance reached 0.000. The main research conclusion is that limited partnership companies listed on the Amman Stock Exchange adopt corporate governance to achieve control effectiveness of audit committees to increase financial reporting efficiency to achieve more investments. AcknowledgmentThe publication of this research has been supported by the Deanship of Scientific Research and Graduate Studies at Philadelphia University – Jordan.