Audit Committee Members Research Articles

Effect of Audit Opinions and Entity's Characteristics on Audit Committees' Effectiveness in Government Entities in Tanzania

This paper examines the influence of audit opinions and entity characteristics on audit committee effectiveness (ACE) in government entities. Using a large sample of government entities in Tanzania as a reference, the paper adopted the resource dependency theory to explain the theme. Data were collected from 230 government entities' financial statements and Controller and Auditor General (CAG) reports from 2014/15 to 2019/20. The ordinary least square (OLS) technique was utilised to obtain regression results. The results show that disclaimer opinion negatively affects Audit Committee (AC) effectiveness. Qualified Opinion and Adverse Opinion were found to be insignificant though they had a negative relationship the same as disclaimer opinion. Specifically, unqualified opinion is a significant positive aspect related to AC effectiveness. Furthermore, entity structure, size, and location significantly and positively influenced AC effectiveness. On the other hand, firm age had statistically insignificant effect. The study findings imply that an entity should have experienced/competent audit committee members in accountancy. Also, the audit committee must be well-composed and have sufficient resources to obtain a clean report. Therefore, the paper recommends inviting the national audit office to every audit committee meeting. The board and management should emphasise on the budget for the training AC members. Further, the President's Office - TAMISEMI and the ministry responsible for finance should insist on the establishment and activeness of AC in all government entities in Tanzania. As per the author's knowledge, this paper adds new empirical knowledge by utilising CAG reports to link the effectiveness of AC with audit opinions and entity characteristics in Tanzania.

The Accounting Financial Expertise of the Audit Committee Chair and Oversight Effectiveness

SUMMARY Prior research finds that the presence of accounting financial expertise (AFE) on the audit committee (AC) enhances financial reporting quality. The current study provides a broad examination of the effect of the AFE residing in the AC chair on the monitoring of financial reporting quality and the audit process. Based on a sample of over 13,840 observations from U.S. public companies, we find that AFE of the AC chair is associated with lower levels of earnings management and enhanced monitoring of the audit process. When augmented by AC members with AFE, AC chair AFE is also negatively associated with reduced misstatement risk. This finding suggests appointing an AFE to the AC may not in itself be sufficient to fully enhance oversight quality, unless the committee also has a chair who possesses AFE. Finally, chair AFE is also found to enhance the likelihood of reporting material control weaknesses and goodwill impairments.

MITIGATE TYPE II AGENCY CONFLICT THROUGH GOOD CORPORATE GOVERNANCE AND DISCLOSURE QUALITY

Empirical evidence on type II conflicts between controlling shareholders versus minority shareholders has not been extensively explored. This study gives new evidence on the agency conflict in a scenario of highly concentrated ownership. This study aims to examine the effect of Good Corporate Governance mechanism with quality of disclosure on concentrated ownership context The sample were drawn from companies listed on the Indonesia Stock Exchange (IDX). The data were analyzed with panel data regression. The results shows that CG mechanisms negatively effects with DQ. However, looking at each individual variable, the study reveals that the audit committee and independence of audit committee are not significant. A possible reason is that companies' audit committee members have lack of accounting expertise and independence. These findings shed light on the concept of good CG enhances incentives for good DQ under highly concentrated ownership. It the effectiveness of CG mechanisms is likely to supplement regulation to protect investor rights and may prove to be useful for standard-setters as an important way to reduce agency conflicts.

On the effort-saving effect of audit committee–auditor interlocking

Using unique data on audit hours from China, this paper investigates the effort-saving effect of the audit committee–auditor interlocking (AClk). We find that AClk is negatively associated with audit effort without any deterioration in audit quality. The results suggest that AClk has an effort-saving effect through information sharing between interlocked audit committee members and auditors. However, auditors retain the effort-saving benefits of AClk without sharing them with their client firms. Further analysis shows that the effort-saving effect of AClk is more pronounced for client firms whose auditors have industry expertise, for client firms that share the same individual auditor, or for client firms that share audit committee members with financial expertise.

Audit Committee Attributes and Share Price Reaction of Listed Deposit Money Banks in Nigeria

This study investigated the effect of audit committee characteristics on share price reaction of listed Deposit Money Banks (DMBs) in Nigeria. Specifically, the study sought to examine the effect of audit committee independence, expertise, size, frequency of meetings and gender diversity on share price reaction of listed DMBs in Nigeria. The study adopted the ex-post facto research design. The study used a sample of 12 DMBs from a population of 14 DMBs listed on the Nigerian Exchange Group using the filtering method. Data were sourced from annual reports and accounts of the sampled DMBs in Nigeria. The study period covered ten (10) years from 2011-2020. Pooled Auto Regressive Distributive Lag (ARDL) Model was used for data analysis. The results of the study suggested that audit committee independence, size, frequency of meetings and gender diversity have a perverse and significant effect on share price reaction of DMBs listed in Nigeria. The result of the study also established that audit committee financial expertise positively but insignificantly affects share price reaction of DMBs listed in Nigeria. The study, therefore, recommended that financial expertise of the audit committee members should be given utmost attention by the board since it exerts a positive effect on share price reaction. This is supported by the requirements of CAMA 2020 which states in section 404 subsection (5) that all audit committee members should be financially literate and at least one of them should be a member of a professional accounting body established by an Act of the Nigerian Parliament. The study also recommended that DMBs should strive to maintain a small audit committee size below the stipulated maximum number of 5 as stipulated by CAMA 2020 for effective performance.

Auditors’ Communication with Audit Committee: Evidence from Indonesia

The aim of this study is to explore the auditors’ communication with those charged with governance (TCWG). Specifically, we examine the communication between auditors and the audit committee on the audit of financial statements in the year 2020 in the Indonesian setting. We use questionnaires to collect the data. Our samples are 72 audit committee members from various industries. We find that most of the auditors have discussed the matters that are required by the audit standards. However, we find that almost ten percent of the respondents reported that there was no kick-off meeting before the start of the audit process. The absence of a kick-off meeting may indicate that the audit plan is not communicated in a timely manner to the audit committee. We also find that face-to-face communication through a meeting is preferred to written communication most of the time.

Do Publicly Listed Insurance Firms in Saudi Arabia Have Strong Corporate Governance?

Saudi Arabia has now opened its markets to foreign investors in line with its strategy to diversify its economy. However, investors need to feel confident that Saudi enterprises are being monitored and regulated appropriately. This study identifies the impact of improvements in Saudi corporate governance practices among insurance firms. The effects of corporate governance on the financial performance of 35 insurance firms listed on the Saudi stock market are examined from 2008 to 2014, including Shariah-compliant and life insurance firms. Four different methodologies are used: the generalised least squares random effect, fixed effect models, a difference-in-differences (DID) measurement for comparisons, and the probit model with average marginal effect to address endogeneity. The results indicate that firm performance is affected by information asymmetry. The 2009 exogenous shock from the Saudi regulatory change to board composition and audit committee size shows a positive effect on performance in the DID comparison. However, an increase in independent board and audit committee members has a significant negative effect. Other findings indicate that an increase in CEO (Chief Executive Officer) age has a positive effect on performance, as do three pay variables (director incentives, CEO and top executive pay, and above-the-mean director incentives). However, when CEO and top executive pay increases above the mean, the effect turns negative; this also happens with a change in CEO from poor performance. The results support the importance of Saudi insurance industry corporate governance regulation and reflect the improved governance perspectives of the Saudi Capital Market Authority and Saudi Arabian Monetary Agency.

Corporate Governance in the Public Sector of Ghana: The Role of Audit Committees in the Covered Entities.

Corporate governance sets the tone at the top by bringing efficiency and effectiveness in managing covered entities. It minimises risks and prevents fraud thereby protecting the public purse. However, applying the concept of corporate governance has met some challenges. The population of the study was Audit Committee members of covered entities and purposive method of sampling was used to select 50 Audit Committee members for the study. Likert type five scale response questionnaire was used to collect data and hypothesis was statistically tested using analysis of variance technique to address the research question. It was found out that the Audit Committees perform differently from one entity to another. Some do not follow the Audit Committee Guidelines.

Does audit committee improve audit quality? The case of Saudi Arabia

This paper investigates the potential correlation between the performance of Audit Committees (AC) and Audit Quality (AQ). Data is derived from capital goods firms listed on the main stock exchange of Saudi Arabia (TASI). Logit regression analysis is used for this purpose and the dependent variable of BIG4 is used as a proxy for AQ, while AC meetings (ACMT), size (ACSZ), and AC members with a financial background (ACEX) are used as explanatory variables. The results show no statistical association between ACMT and AQ. However, the analysis indicates a positive statistical relationship between ACSZ and AQ, and a strong negative association between ACEX and AQ. These findings provide insights into the impact of AC attributes on AQ, and would be of interest to decision makers, policy-makers, investors, and senior management.

Quando os controles importam: evidências da associação não linear entre as Deficiências de Controles Internos e a Qualidade de Auditoria

ABSTRACT This study aimed to analyze the association between Internal Control Weaknesses (or Internal Control Deficiencies - ICDs) and Audit Quality (AQ). The article fills a gap in the national literature, as it provides evidence of an association between reported ICDs and the main AQ proxies. The study is relevant because it evinces the lack of contemporary association between reported ICDs and the AQ of listed Brazilian companies, but found a lagged association between these variables. Unlike prior studies, it was observed that the ICDs reported in the previous year can function as an Audit Red Flag in the current year, thus contributing to risk assessment by accountants, auditors, members of governance and audit committees, and regulators. The study, documentary and descriptive, with a quantitative approach, analyzed data from a sample of 257 companies listed on the Brazil Stock Exchange and Over-the-Counter Market (Brasil, Bolsa, Balcão [B3]) in the period 2010-2018. Data were assessed using regression models with panel data, logistic and negative binomial. The results showed that, although there are significant differences between the AQ proxies for companies that reported ICD and those that did not, there is no contemporary and statistically significant association between ICD disclosure and AQ proxies. However, it was observed that audit delay and the probability of being involved in an Administrative Sanctioning Procedure (ASP) are associated with the number of ICDs reported in the previous year.

Audit Committee Member Busyness and Risk Factor Disclosure

Audit Committee Member Busyness and Risk Factor Disclosure

Disclosure of forward-looking information: does overlapping audit committee membership matter

Disclosure of forward-looking information: does overlapping audit committee membership matter

Disclosure of forward-looking information: does overlapping audit committee membership matter

Disclosure of forward-looking information: does overlapping audit committee membership matter

The Impact of Audit Committee Composition and Performance on Financial Reporting Quality in Kurdistan’s Industrial Companies

Given the high prevalence of corporate fraud and misconduct worldwide, the demand for financial reporting quality has also been on a high rise.  Among the suggested courses of action is audit committee composition and performance. Consequently, the study examines the impact of audit committee composition and performance on financial reporting quality using 277 responses collected from 140 internal audit managers, 120 audit committee members and 17 financial managers of five strategic industries in Erbil, Kurdistan. The responses were regressed using two single regression analysis models with the aid of SPSS version 24. The findings of the study indicated that improvements in both audit committee composition and performance have significant positive effects on financial reporting quality. The study’s theoretical underpinnings are engraved in suggesting that the principal-agent theory’s propositions can be improved by having sound audit committees capable of performing exceptionally well so as to improve financial reporting quality. The study’s practical contributions are linked to its capacity in highlighting that industrial companies must be cautious when selecting audit committee members

Relationship between Corporate Governance Dimensions and Financial Performance of Listed Insurance Companies in Muscat Securities Market, Sultanate of Oman

This study aims at determining the factors of corporate governance that impact financial performance. It uses a panel analysis approach that considers data from 2004 to 2018 of the insurance companies in Muscat, Oman. Out of the 10 insurance companies listed in Muscat Securities Market, four companies were chosen based on pre-established criteria considering the availability of data for the period indicated. To analyze the data gathered, descriptive analysis techniques using SPSS version 21 and Stata version 14 were applied. Based on the findings, board size affects ROA positively but negatively on ROE; FBM affects ROE positively but negatively affects ROA; BI has a negative influence on both ROA and ROE; and, AC affects ROA positively but negatively on ROE.
 Conversely, audit committee size positively impacts ROA and the independence and impartiality is a must to be a member of the audit committee. Conclusion from the findings suggests that the increasing number of the members of audit committee contributes positive signs for ROA which can be supported by many studies. Findings proved the significant positive relationship between audit committee size and independence on a firm’s financial performance. For organizations such as insurance companies, the frequency of board meetings can be determining factor to decide in terms of profitability issues and business performance. Finally, the results provide the management to examine the implications of deciding how many members of the board, frequency of board meetings, board independence, and audit committee as these can influence financial performance such as ROA and ROE.

Homophily versus monitoring: Do all female board directors drive the gender assignment of audit partners?

By examining the extent to which the proportion of female board directors affects the gender assignment of engagement partners, this paper contributes to the existing literature in several ways. First, we investigate the French mandatory joint audit setting, giving rise to a set of concerns with regard to the auditor pair composition. Second, we consider female directors according to their positions on the board in order to determine which of the homophily and monitoring arguments plays the greater part in the auditor selection process. Third, we address the moderating effect of the gender quota law on the link between female directorship and the choice of audit engagement partners. Using appropriate estimation methods, we find that female board members appointed to key monitoring positions (female independent directors and female audit committee members) choose gender-diverse engagement partners. However, counter to the gender similarity (homophily) argument, we find that female inside directors are negatively associated with the selection of gender-diverse engagement partners. The association between gender-diverse boards and gender-diverse audit partners is found to be more pronounced in the period following the enactment of the gender quota law, thereby providing some practical and policy implications with regard to capitalising on the benefits of gender diversity. Supplementary analyses support the preponderance of the monitoring argument over the homophily argument in the auditor selection process.

Do Environmental Performance, Feminism in Commissioner, Female Audit Committee, and Corporate Visibility Affect Corporate Environmental Disclosure?

The company should not separate developing business activities from society's external environment. Instead, the companies should protect the external environment, so many companies need to improve the sustainability of their companies to be better through corporate environmental disclosure. This study aims to examine and analyze the effect of environmental performance, feminism in commissioners, female audit committees, and corporate visibility towards corporate environmental disclosure, controlled by profitability and liquidity. One hundred samples were obtained from the mining companies listed on the Indonesia Stock Exchange from 2015 to 2019 and analyzed using the multiple linear regression method. This study proved that female audit committee could positively influence corporate environmental disclosure. On the other hand, this study found that environmental performance, feminism in commissioners, and corporate visibility couldn't affect corporate environmental disclosure. This result of study can be used by the company's management to help companies provide more thorough supervision of decisions made by management related to social responsibility activities carried out by the female audit committee and monitor the quality of environmental disclosure more effectively. For investors, the results of this study are expected to provide information to investors about the importance of female audit committee members' existence in supporting the community's welfare.

Financial Fraud, Independent Female Directors and CEO Power

This paper investigates the effect of female directors on financial fraud, focusing on the role of independent female directors and their demographics, such as experience, financial expertise, and audit committee membership. We find that independent female directors have a negative and significant influence on financial fraud, which is enhanced by their experience and financial expertise. The positive effect is also significant for those female directors that are members of the audit committee and have financial expertise. Independent female directors offset the increased likelihood of fraud in the presence of powerful CEOs, suggesting that the impact of their contribution is more valuable when there is managerial entrenchment.

The Determinants and Impact of Key Audit Matters Disclosure in the Auditor’s Report

We investigate the determinants of key audit matters (KAMs) in the auditor’s report. In particular, we examine the impact of overlapped audit committee (AC) directors on the quantity of KAMs disclosure. We also examine the consequences of KAMs disclosure. We test to see if the quantity of KAMs disclosure affects audit quality. Oman was among the early adopters of KAMs disclosure requirement. We, therefore, use the content analysis approach to count the number of KAMs disclosed in auditor reports of financial firms listed on the Muscat Stock Market for the period of 2014 to 2019. We use regression models to test our hypotheses. Overlapped audit committee directors are measured as the ratio of AC members who also serve on other committees within the same firm. We use audit fees as a proxy for audit quality. We find that overlapped AC membership positively affects KAMs disclosure due to the knowledge spillover that results from serving on multiple committees. We also find that KAMs disclosure positively affects the quality of external auditing. We make an important and novel contribution to the literature on financial reporting, auditing and corporate governance. We add to the literature by providing the first empirical evidence of the impact of overlapped AC members on KAMs disclosure and the impact of KAMs on the quality of external auditing. The findings provide important policy implications to exceedingly appoint overlapped members on AC to enhance the level of KAMs disclosure, which leads to an improvement in audit quality.

Covering or monitoring? Independent director connectedness and corporate fraud in China

This paper examines how independent directors’ social capital, as measured by their social network, affects corporate fraud. We find that firms with well-connected independent directors are less likely to commit fraud, supporting our monitoring effect hypothesis. This result is robust to a battery of tests. Further analyses show that the effect is stronger for firms with a relatively poor legal environment, for firms whose independent directors face strong reputation incentives and when independent directors are audit committee members. Moreover, we explore a potential economic mechanism of the effect and observe that well-connected independent directors are associated with less absenteeism and more dissension. Overall, our findings suggest that independent directors’ social capital plays an important role in corporate governance.