Audit Committee Members Research Articles

Audit committee accounting financial expertise and stock price crash risk

This paper examines whether the accounting financial experts (hereafter, AFEs) among audit committee (hereafter, AC) members and the AFEs' specific types of expertise affect future firm-specific stock price crash risk. Using a Korean sample of 2142 firm-year observations, we classify AFEs into four specific types: AC members with auditing, academic, practical, or supervisory expertise. We find that AC accounting financial expertise in general, and AFE with auditing and supervisory expertise in particular, are likely to reduce firm-specific crash risk. In addition, we provide evidence that the interaction between AC members with different types of expertise has a significant effect on the stock price crash risk by utilizing synergies between them. Furthermore, our findings are more pronounced for firms with higher financial reporting opacity, higher information asymmetry, and the presence of accounting financial expertise in the AC chair position, and are robust to alternative research designs. Overall, our results highlight the roles of different types of AC accounting financial expertise in preventing crashes in stock price.

Pengaruh Komite Audit, Ukuran Perusahaan dan Profitabilitas terhadap Earnings Management di Perusahaan Manufaktur Sektor Barang Konsumsi

This study aims to examine the effect of the audit committee, firm size, and profitability on earningsmanagement. Earnings management is proxied by discretionary accruals, audit committee isproxied by the number of audit committee members, firm size is measured by the natural logarithmof the firm's total assets, and profitability is measured by return on assets (ROA). The researchmethod used is a quantitative method with secondary data. The analysis technique used is multiplelinear regression analysis. The sample selection technique uses a purposive sampling methodwhich consists of 41 manufacturing companies in the consumer goods sector listed on theIndonesia Stock Exchange for 2018-2021. The results of the study partially show that the auditcommittee has a positive and significant effect on earnings management, firm size has nosignificant effect on earnings management, and profitability has a positive and significant effecton earnings management. In addition, the audit committee, firm size, and profitabilitysimultaneously have a significant effect on earnings management.

Industry specialization and tax avoidance in the Australian banking industry

PurposeThe purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks.Design/methodology/approachThis study uses a multivariate regression analysis based on hand-collected data consisting of 180 observations from Australian domestic banks between 2010 and 2018.FindingsThe primary results of the empirical analysis indicate that audit partner industry specialization is negatively associated with the level of tax avoidance in Australian banks. Regarding the audit committee, the proportion of industry specialists among audit committee members reduces the magnitude of tax avoidance. These results are robust, as they hold the same for alternative measures of tax avoidance and industry specialization of audit partner and audit committee members. Results from supplementary analysis reveal that the interactive effect of both audit firm and audit partner industry specialization strengthens the auditors’ effectiveness in reducing the level of tax avoidance.Practical implicationsAs this study highlights the importance of the industry specialization in decreasing tax avoidance, it can be beneficial for policymakers to assess the impact of good governance on the level of tax avoidance in the banking industry.Originality/valueEven though the existing studies examine the link between the governance actors’ industry specialization and tax avoidance in nonfinancial firms, this paper explores the banking industry that differs from nonfinancial firms in among others; accounting and fiscal regulations. This study further provides unique evidence indicating that industry specialization of the audit partner constitutes a significant determinant of minimizing the bank’s level of tax avoidance.

Pengujian Praktik Manajemen Laba Dengan Kualitas Audit Sebagai Variabel Pemoderasi

This study aims to obtain empirical evidence of the effect of the independence of commissioners and audit committees on earnings management and to test audit quality as a moderating variable can strengthen the relationship between the independence of commissioners and audit committees on earnings management or weaken the relationship between the independence of commissioners and audit committees on earnings management. Audit quality as a moderating variable, because high quality auditors strengthen supervision of management so that the profits reported in the financial statements are more transparant and free from misstatements. Manufacturing companies listed on the Indonesia Stock Exchange from 2017 to 2020 were used as samples and 94 companies were selected using purposive sampling method. This study uses path analysis to test the hypothesis. The results showed that the independence of commissioners and audit committees can reduce earnings management behavior by management. Supervisory activities by independent commissioners and audit committees are more effective in reducing opportunistic behavior by management, so that information can be more transparent and have higher quality. This study also provides results that higher audit quality can strengthen the relationship between audit committee independence and earnings management. This study provides information to investors and companies that to prevent earnings management, they can add commissioners and audit committee members from outside the company and also use qualified auditors in providing opinions.

Independent directors’ attributes and related party transactions in Malaysia: evidence from an individual perspective

Purpose This study aims to examine the ability of independent directors to discipline related-party transactions (RPTs) among listed companies in Malaysia. Firms typically appoint independent directors individually, not as a group. However, board members are commonly viewed collectively as a group, and evidence of the abilities of individual directors is scarce. Design/methodology/approach The attributes of individual independent directors include accounting literacy, length of service, audit committee membership and active participation in board and audit committee meetings. The unit of analysis is the individual independent director. The final sample consists of 1,552 observations in 2017, and RPTs are categorized as either efficient or conflicting. Findings The study finds that the tenure of individual independent directors and active participation in board meetings affect the firm’s engagement in RPTs. However, the financial literacy, audit committee membership and attendance of independent directors at audit committee meetings do not affect the firm’s engagement in RPTs, either efficient or conflicting. Overall, this result offers limited support for the upper-echelon theory concerning the attributes of individual independent directors and RPTs. Research limitations/implications This study uses cross-sectional observations for 2017, which predates the COVID-19 pandemic. Thus, this study ignores the impact of restrictions in community mobility during the pandemic on the independent director’s ability to monitor the corporation. This circumstance may have implications for practice and merit further research. Practical implications The findings provide information for board nominating committees, regulators and policymakers that the capability of individual independent directors to fulfill their responsibilities is limited. The firm’s nominating committee must be very selective in nominating and appointing independent directors with appropriate competencies. Investors should choose companies that have reappointed the same independent directors for an extended period, as they may benefit from the experience in protecting investors’ interests. Originality/value This paper contributes novel evidence to upper-echelon theory literature on the association between independent directors and RPT types from the perspective of individual independent directors.

The simultaneously representation of women at the audit demand and supply sides and audit quality

PurposeEven though the gender literature has addressed the independent effects of female audit committee members and female audit partners on audit quality, this research primary analyses whether the association between the presence of a female audit partner and audit quality depends on (fe)male participation on the audit committee of the audited client-firm. It further examines whether the relationship between female participation on the company's audit committee and audit quality is contingent on having a (fe)male audit partner.Design/methodology/approachA large sample of firm-year observations from the Swedish Corporation has been analyzed for the period that covers the years 2010–2019. The research hypotheses have been analyzed using the year and the industry fixed effect estimations clustered at the firm level.FindingsIn accordance with “the similarity-attraction theory”, the research findings provide support for a positively (negatively) significant relationship between female audit committee female representation and both audit fees and the audit reporting lag (earnings management) in client-firms of female audit partners, albeit insignificant in client-firms of male audit partners. This underscores that the presence of a female audit partner leads the beneficial link between female audit committee directorship and audit quality. Regression results on whether the relationship between female audit committee directorship and audit fees is contingent on having a (fe)male audit partner indicate that female audit partners earn higher (lower) audit fees in companies with gender-diverse (all male) audit committees. This corroborates (in somewhat) the male-female disparities in compensation within the public-audit firms' leading ranks, regarded as a male-dominated workplace worldwide. In conjunction with the argument that (compared to their male rivals) female auditors face more difficulties to reach partnership positions in the public-audit firms and are, thereby, more cautious about the loss of these positions through (in almost cases) exerting more audit efforts, and preventing their audited client-firms from manipulating earnings, the authors reveal that female audit partners are associated with longer (lower) audit reporting lags (earnings management) in both companies with gender-diverse and companies with all-male audit committees. The authors therefore conjuncture that the beneficial female auditor effect on audit quality is not contingent (in somewhat) on (fe)male participation on the company's audit committee. Collectively, the baseline reported results seem sound as they dissipate for a host of alternative metrics for both the dependent and the independent variables. Collectively, the baseline reported results seem sound as they dissipate for a host of alternative metrics for both the dependent and the independent variables.Originality/valueThis study heeds the recent claim for examining the gender effect on the interpersonal interaction between the main participants in the company's auditing process.

Moderating Effect of Audit Committee Financial Expertise on the Relationship between Audit Quality and Earnings Management of Quoted Consumer Goods Firms in Nigeria

This study examined the moderating effect of audit committee financial expertise on the relationship between audit quality and earnings management among quoted consumer goods companies in Nigeria. Earnings management as dependent variable was proxied by discretionary accruals while audit quality is explained using audit fees and auditor industry specialization.The study adopted Ex post facto research design. Population included all the 21 companies in the consumer goods sector. The study purposively, sampled 17 out of the entire population for the purpose of data collection. The study covered the period 2012 to 2021. Secondary data were extracted from the annual accounts of the companies for the period of the study. The study employed the use of multiple regression technique to analyse the data. The result of the study showed that both audit fees and auditor industry specialization have positive significant relationship with earnings management when moderated by audit committee financial expertise. The study concluded that both variables can be used as determinants of real earnings management when there is a financial expert on the audit committee. From the findings, it was recommended that efforts should be made with respect to legislations to strengthen auditors’ quality in Nigeria by ensuring that audit committee members have financial expertise since it is a viable corporate governance tool towards enhancing reported earnings quality.

Audit Committee and Audit Report Lag: A Literature Review

The paper aims to review studies dealing with audit report lag or audit delay and the Audit Committee in accounting literature over the period of 2006-2022. Research on factors related among audit report lag and audit committee has become more widespread in recent years and there was a considerable upsurge in these papers. This study combines electronic and manual searches to identify relevant studies. The search was performed using keywords such as “audit committee” and “audit report lag” or "audit delay" or "audit lag" and in total, 35 published studies were identified. The findings show that the majority of research studies the relevance of audit report lag / audit delay to the effectiveness of the Audit Committee which represented by its key characteristics (size, independence, member financial expertise, frequency of meetings, presence of women). The future shows that researchers are turning to additional characteristics of Audit Committee members to check whether they relate to audit report lag. Finally, we stand for the future of research with suggestions for new researches.
 
 Keywords: Audit Delay, Literature Review, Corporate Governance
 JEL: M42, G34

The female audit committee members expertise and experience: is there a trade-off between accrual-based and real earnings management?

Purpose This paper aims to examine the impact of female AC representation (ACFEMALE) following the adoption of gender quota legislation on the trade-off between accrual-based (AEM) and real earnings management (REM), taking into consideration their demographic attributes. Design/methodology/approach A sample of 89 companies listed in the SBF 120 during the period 2012–2018 has been employed. The authors have obtained the explanatory variables using the principal component analysis method. To provide empirical evidence for the testable hypotheses, the authors have estimated a least squares regression. A differences-in-differences analysis has been estimated to analyze the impact of the gender quota law imposition. Findings The regression results indicate that companies with a higher proportion of ACFEMALE have more tendency to use REM rather than AEM. The authors further denote that the ACFEMALE expertise negatively affects AEM. Moreover, the authors find that the ACFEMALE experience helps reduce both AEM and REM. Results from the DID analysis exhibit that the ACFEMALE effect on the trade-off between REM and AEM occurs for the period that follows the implementation of the French gender quota law. Furthermore, the authors denote that the negative link between the ACFEMALE experience and AEM and REM dissipates for both the pre- and the postgender quota law adoption. Originality/value This study extends the prior existing research by examining, for the first time, the relationship between female directors’ appointments and the trade-off between accrual-based and REM. As well as, the research provides primary evidence on the channels through which female directors may affect the managerial preference regarding the earnings management techniques AEM or REM.

The Role of Corporate Governance and Size of the Firm on Internal Control Disclosure

This study examines how internal control disclosure is impacted by corporate governance and firm size. The size of the board of commissioners, the makeup of the independent board of commissioners, management vs institutional ownership, the size of the audit committee, and the degrees in accounting or finance held by audit committee members are all factors in corporate governance. The study's sample is the portion of the banking sector that was traded on the Indonesia Stock Exchange between 2015 and 2021. In this study, 29 companies were included in the sample, and observations were made over a period of 7 years. Purposeful sampling was employed as the sampling approach. To process their data, researchers employ multiple regression analysis. The findings of this study suggest that internal control disclosures are influenced by firm size and level of accounting or finance education. Internal control disclosures are unaffected by the size of the audit committee, the make-up of the independent board of commissioners, management ownership, institutional ownership, or the number of commissioners.

Audit committee attributes and Islamic bank risk-taking behavior

PurposeThis study aims to investigate the relationship between audit committee (AC) attributes and the risk-taking behavior of Islamic banks.Design/methodology/approachThe study used data generated from the annual reports of 43 full-fledged Islamic banks operating in 15 countries between 2010 and 2020.FindingsThe findings indicate that AC size, AC independence and the proportion of AC members from foreign countries have a significant negative relationship with the risk-taking of Islamic banks. However, AC meetings, AC gender diversity and the proportion of AC members with doctorate degrees have insignificantly influenced the risk-taking of Islamic banks.Research limitations/implicationsThe study used only six AC attributes out of corporate governance mechanisms likely to affect the insolvency risk of full-fledged Islamic banks between 2010 and 2020.Practical implicationsThe study sheds light on the effects of AC attributes on the risk-taking of Islamic banks. The findings could allow policymakers and regulators to provide policies and regulations that could improve AC’s oversight role in constraining Islamic banks from excessive risk-taking. Besides, this study can guide the board of directors in appointing AC members who can prevent Islamic banks from taking excessive risks.Originality/valueThis study provides clear and adequate empirical evidence showing how key audit committee attributes influence the risk-taking behavior of full-fledged Islamic banks.

Corporate Governance Stability And its Impact on the Quality of Accounting Information of Companies Listed on the Iraq Stock Exchange

Purpose: This research attempts to examine the influence of corporate governance stability on the accounting information quality. Theoretical framework: Stability in different mechanisms of corporate governance can help companies develop coherent plans and strategies and achieve their goals. Multitudinous changes in factors such as ownership and management and monitoring institutions such as independent auditors and members of audit committee can make changes in the company's goals thus affecting the financial reporting quality as a means of accountability of corporate governance elements. Methodology: The stability of corporate governance was measured using four criteria, namely managerial stability, ownership stability, independent audit tenure stability, and audit committee tenure stability. The statistical population includes the companies admitted to the Iraq Stock Exchange, and the research sample has been selected by the application of the conditions of the study variables to 55 companies in 2011 and 2020. In order to analyze the data and test the hypotheses, the statistical technique of multiple regression with panel data has been used. Finding: This work shows that the first hypothesis is rejected and that the managerial stability is negatively correlated with the accounting information quality. Moreover, according to the results, the second hypothesis of the research is also rejected and ownership stability is negatively correlated with the quality of accounting information. The third hypothesis outcomes also indicate the rejection of the research hypothesis and the independent auditor tenure stability and the accounting information quality have a similar relationship. Accordingly, the audit committee tenure stability is not significantly correlated with the accounting information quality. Research, Practical & Social implications: The results of testing the hypotheses showed that the greater the stability in the governance and monitoring elements of companies, the lower the quality of accounting information. Originality/value: Prior studies have focused on one or more corporate governance criteria and measured their impact on the accounting information quality. It should be noted that none of the conducted studies have provided a model to identify the impact of corporate governance on the accounting information quality.

Language, perceived warmth, and investors' reactions to audit committee reports

AbstractAn audit committee (AC) report is the primary channel through which investors learn about the responsibilities and activities of an AC. AC members may use personal language (“we”) or impersonal language (“the audit committee”) in an AC report. Psychology research suggests that personal (vs. impersonal) language signals that the language user has greater warmth and sense of communion (i.e., being part of a larger group). Applying this theory, we predict that an AC's use of personal (vs. impersonal) language leads investors to perceive a warmer and more communal AC, and that an AC's perceived warmth/communion (cued by personal language) positively impacts investor judgments. We further posit that the positive effect of personal language is stronger when AC compensation is largely short term than long term. This is because investors need more assurance of AC oversight effectiveness when AC compensation is short term, which makes investors rely more on heuristic cues such as AC language to make judgments. Consistent with this prediction, we find that when AC compensation is largely short term, nonprofessional investors (proxied by Master of Business Administration students) react more positively to an AC's use of personal language than impersonal language. The effect of AC language is insignificant when AC compensation is largely long term, as the long‐term compensation structure already provides assurance about the AC's oversight effectiveness, and thus, investors rely less on heuristic cues. Furthermore, we find that the perceived warmth of AC members explains the effect of AC language. Finally, our interviews with nonprofessional investors corroborate some of our main findings and validate their practice implications.

Mutual funds' capital gains lock-in and earnings management

Capital gains taxation creates a lock-in effect, increasing investors' incentives to monitor and decreasing portfolio firms' incentives to cater to short-term investors. We show a negative relation between lock-in and portfolio firms' earnings management, and this relation is stronger for capital gains held by tax-sensitive investors. Further, the relation between lock-in and earnings management is stronger when the capital gains tax rate is higher. We show that locked-in funds vote against management and against audit committee members' reappointment following earnings management. Locked-in funds are less likely to exit a position following disappointing earnings announcements, reducing firms' incentive to manage earnings.

A decentralized trust management mechanism for crowdfunding

Crowdfunding is an act of raising funds from the public to support an individual or organizational project, and the success of crowdfunding projects lies in gaining backers' trust. In practice, however, crowdfunding platforms are rife with fraudulent crowdfunding projects. While some crowdfunding platforms use third-party auditors to verify projects before publishing, this also runs the risk of collusion between crowdfunders and auditors. The recent introduction of blockchain has increased the transparency of crowdfunding, but they, too, lack fraud prevention measures. Obviously, existing crowdfunding trust management schemes are not applicable under a zero-trust scenario. In this study, we propose a blockchain-based trust management mechanism for crowdfunding to address the fraudulent behavior in the existing crowdfunding systems. We introduce an auditor committee to audit crowdfunding projects credibly. A random selection algorithm on the blockchain enables the distributed generation of auditor committees with a trade-off between the randomness of selection and auditor expertise. The audit results are based on independent auditing by the audit committee members and are presented by the smart contract, avoiding the influence of third parties. In addition, we also provide an incentive mechanism to encourage auditors who perform accurate audits. Theoretical analyses and experiments show that our scheme can effectively deal with malicious behaviors and has an acceptable overhead.

Audit committees, political connections, and audit quality on tax avoidance

Differences in the results of previous studies regarding the relationship between audit committees, political connections, and audit quality on tax avoidance make this research necessary. This study aims to thoroughly review and identify empirical evidence about the impact of audit committees, political ties, and audit quality on tax avoidance. Tax avoidance is a dependent variable. Audit quality, audit committees, and political connections are independent variables. Political connections were calculated using the number of Board of Commissioners with the formula of calculating the number of Commissioners: The Board of Commissioners was politically connected. The audit committee was calculated using the number of members of the company's audit committee. The audit quality measurement in this study is dummy variables. This study is explanatory research and uses a quantitative methodology. The 36 samples included in this study are mining firms listed between 2017 and 2019 on the Indonesia Stock Exchange. Purposive sampling was used to collect samples, while multiple linear regression was the technical data analysis method used in this study. When selecting how to disclose financial information, the corporation considers the audit committee. Political connections negatively affect tax avoidance. It reveals how political ties to the board of commissioners also affect tax evasion. Audit quality has a detrimental effect on tax evasion as well. The Big Four Public Accounting Firm's (KAP) audit standard ensures accurate financial data.

Moderation effects of multiple directorships on audit committee and firm performance: A middle eastern perspective

This study examines the moderation effects of audit committee members’ multiple directorships on the association between the number of audit committee meetings, attendance in the audit committee meetings and firm performance. A panel generalized least square method is used as the analysis tool, on the selected listed firms in the Saudi Arabian Stock Market (Tadawul). Empirical evidence suggests an inverse relationship between the number of audit committee meetings, audit committee meetings’ attendance and firm performance. As for the moderation effects of multiple directorships, a positive effect is documented. The results indicate that the multiple directorships by the audit committee members play a significantly positive role on firm performance in the Kingdom of Saudi Arabia (KSA). This study underwrites a middle eastern perspective on the relationship between the number of audit committee meetings and its attendance and the moderation effects of audit committee members’ multiple directorships on firm performance. The findings of this study provide valuable insights to policymakers and practitioners. The results should provide support to regulatory authorities to legislate effective regulations to make internal governance mechanisms work more effectively in the country.

Does Audit Committee Busyness Impact Audit Report Lag?

We investigate the effects of both the busyness of audit committee (AC) members and the busyness of audit committee chairs on audit report lag (ARL) among Saudi non-financial firms between 2018 and 2021. In this study, a sample comprising a total of 515 firm-year observations from 140 non-financial firms was used. Measures for the busyness of the AC members and AC chairs, as well as a measure for the ARL, were derived from the previous literature to examine these relationships in Saudi Arabia. Our findings, based on two regression models and random effect estimates, suggest that both the busyness of AC members and the busyness of the AC chairs have positive and significant effects on the ARL. In addition, robustness checks using a different measurement of ARL as well as tests for fixed effect and pooled ordinary least square (OLS) were conducted, and the results confirm our findings. Finally, our findings can help regulators, policymakers, and auditors improve the timeliness of financial information disclosure by Saudi non-financial firms, and they can be expanded to include Gulf Cooperation Council (GCC) nations.

Role of board indexes on corporate social responsibility (CSR) and shareholders’ wealth

Corporate governance plays a vital role in supporting the moral obligation of social responsibility and wealth maximization to facilitate stakeholders. The core purpose of the study is to investigate the impact of corporate governance indexes on social responsibility and Shareholders' wealth maximization in the US firms. The current study employs a sample of 286 non-financial S&P 1500 listed firms from the year 2010–2020. The panel data for S&P 1500 index firms were collected from the Eikone data stream professional service terminal. Panel regression models with fixed and random effects were employed to investigate the proposed hypotheses. In addition, the problem of endogeneity was addressed by the dynamic GMM model. This study constructed an index score for the very first time to address CSR and shareholders' wealth. The results of the study revealed that board composition and board diversity support community development (CSR), but negatively impact global sustainability development (CSR index). However, the audit committee was found to have no impact on both CSR funds and Index. Moreover, the audit committee index (AC) and board diversity index (BC) were also found to significantly contribute to shareholders' wealth maximization, but the audit committee index does not support community development. Shareholder wealth was found to have a very weak relationship with the audit committee index. Our findings have significant implications especially for developed countries. The policymakers and legislators are suggested to employ diverse boards of directors with a balanced composition to enhance human welfare and community development. In addition, regulatory bodies should appoint skilled audit committee members and directors with diverse cultural backgrounds, qualifications and experience to protect common shareholders' interest.

Does Quality of Audit Committee Enhance Audit Quality?

Purpose: This study investigates whether quality of audit committee affects audit quality of Korean listed firms using panel data during the period 2008 to 2018.
 
 Theoretical framework: Recent studies show that characteristics of audit committees such as size, activity, and expertise have a significant impact on the monitoring of the financial reporting process (He and Yang, 2014; Asiriuwa et al. 2018). Therefore, it is necessary to carry out systematic empirical studies to understand the effectiveness of the audit committee from various perspectives.
 
 Design/methodology/approach: The quality of audit committee is classified into four categories: 1) activity, 2) independence, 3) expertise, and 4) the presence of female audit committee member. Audit quality is measured by auditor size and accruals quality.
 
 Findings: This study finds that activity and expertise of audit committee enhance audit quality whereas independence of audit committee does not affect audit quality. The female audit committee member partially enhances audit quality.
 
 Research, Practical & Social implications: This study suggests that the high quality of the audit committee enhances the audit quality and increases the accounting transparency of the firm.
 
 Originality/value: The empirical results of this study suggest that firm should concentrate the optimal composition of the audit committee, not simply the establishment of the audit committee.