Audit Committee Characteristics Research Articles

Audit Committee Characteristics and Quality of Financial Reporting In State Corporations in Kenya

The study sought to assess the influence of audit committee characteristics on the quality of financial reporting in state corporations in Kenya. Audit committees are created with a sole purpose of affirming the trust towards the company’ integrity in the hearts of the stakeholders in regard to the internal procedures; the exercise by the committee gives the stakeholders’ confidence in matters oversight assigned to the committee. Specifically, the study sought to examine the effect of audit committee expertise and audit committee independence on quality of financial reporting among state corporations in Kenya. An explanatory research design was employed to attain the study's purpose. The study's target population was the 187 government-owned enterprises in Kenya. A sample of 127 firms was selected using a stratified random sampling. A structured questionnaire was utilized to collect data. The data was analysed through descriptive and inferential statistics using the SPSS software. The findings from the study revealed that audit committee expertise has a significant influence on the quality of financial reporting in state corporations. The findings further revealed that the independence of the audit committee had a significant and positive influence on the quality of financial reporting in state corporations in Kenya. The study concluded that through the independence, and expertise of the audit committees, state corporations in Kenya had better quality of the financial reporting. It is therefore recommended that the government through the respective agencies upholds the independence and expertise of the audit committees in order to enhance their ability to deliver appropriate quality of the financial reporting in the corporations.

AUDIT COMMITTEE AND FINANCIAL REPORTING QUALITY: THE MODERATING EFFECT OF BOARD INDEPENDENCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

The widely publicized corporate accounting scandals perpetrated under the watchful eye of audit committee despite their roles and function-ns in financial reporting processes, casts doubt in the minds of users on its relevance and credibility. This study examines the moderating role of board independence on the relationship between audit committee and financial reporting quality of listed Nigerian deposit money banks from 2012 to 2021. The study utilized correlation research design, extracted secondary data and OLS multiple regression for analysis. The finding reveals that board independence has a significant negative moderating effect on audit committee characteristics and financial reporting quality represented by discretionary loan loss provision, thereby strengthen the nexus. Based on the findings, the study recommends the appointment of more outside directors, holding strategic regular meeting and appointment of members with financial expertise into the audit committee to guarantee independence, assure discussion and handling of complex financial issues which would improve the financial reporting quality.

Audit committee characteristics and firm performance: Evidence from the insurance sector in Oman

This study aims to determine the effect of Audit Committee characteristics on the performance of the eleven insurance companies listed in Oman between 2015 and 2019. This study focuses on the audit committee meetings and their frequency, the size of the committee, their independence, and the knowledge or expertise they possess. After conducting data analysis on the specified dataset, the regression results revealed that ACSIZE is statistically significant at a p-value less than.05. This indicates that the size of an audit committee has a significant impact on an insurance company's performance. In addition, the ACINDE was statistically significant at p.05, demonstrating that the independence of an audit committee plays a significant role in determining the performance of a company. Moreover, the ACEXP variable had a p-value of less than 0.05, indicating that it is statistically significant. This can be interpreted as meaning that the frequency of meetings has a statistically significant impact on the performance of a company. The statistical significance of only three of the four variables was determined. The variable was excluded from the regression model because its p-value was greater than.05. Therefore, the three characteristics of audit committees in the Omani market have a significant impact on the performance of an insurance company, and senior management should ensure that audit committees have approximately four members, are fully independent to limit control by the firm's management, and have extensive financial experience in order to function effectively. This study will be very useful to financial practitioners and policymakers since it contains practical ideas and recommendations. The research results may also contribute to the creation and implementation of strategic policies for improving corporate governance practices with the goal of maximizing profit and wealth.

Corporate governance and tax avoidance: evidence from an emerging market

ABSTRACT This study investigates the impact of corporate governance practices (namely board characteristics, ownership structure, and audit committee characteristics) on corporate tax avoidance. For this purpose, this study uses generalised least squares regression on a sample of 138 companies listed on the Pakistan Stock Exchange. Ten-year data from 2009 to 2018 are collected from published annual reports, comprising 1380 firm-year observations. The findings highlight that board independence, concentrated ownership, and audit committee gender diversity are negatively associated with tax avoidance. Conversely, managerial ownership and audit committee independence positively influence aggressive tax behaviour. Additional analysis reveals that these impacts are nonlinear and change with the different levels of tax avoidance. Enhanced governance stifles tax avoidance at lower levels; however, it encourages tax avoidance when firms are already aggressively avoiding taxes. This scenario represents a ‘double down’ behaviour depicted by the Pakistani corporate sector. This is one of the foremost studies to explore the impact of corporate governance on tax avoidance in Pakistan. It contributes to the literature by examining the impact of under-researched factors such as board meetings and audit committee characteristics and provides insights into the conflicting findings on board characteristics and ownership structure.

The Effect of Audit Committee Characteristics and Length of Listing on Financial Distress with Intellectual Capital as a Moderation Variable in Property Companies

This study aims to determine the effect of audit committee characteristics on financial difficulties. The characteristics of the audit committee used in this study are the size of the audit committee, the frequency of audit committee meetings, the number of financial experts on the audit committee, and the length of listing. This study uses a moderating variable, namely intellectual capital. The population in this study is 65 property and real estate companies listed on the Indonesia Stock Exchange in 2016-2020. Based on the purposive sampling method, the samples obtained were from 38 companies. Financial distress criteria in this study were measured using the Modified Altman Z-Score. Data analysis used logistic regression with the help of E-Views software. The results of this study indicate that the size of the audit committee, the frequency of audit committee meetings, the number of financial experts on the audit committee, and the length of listing simultaneously significantly affect financial distress. The results of the partial test show that the frequency of audit committee meetings and the length of listing have a positive and significant effect on financial distress. The number of audit committees and the number of financial experts in the audit committee have no significant impact on financial distress. Intellectual Capital cannot moderate the relationship between the size of the audit committee, the frequency of audit committee meetings, the number of financial experts on the audit committee, and the length of listing on financial distress. Keywords: financial distress, audit committee, altman z-score

Corporate governance characteristics and impression management in financial statements. A further analysis. Malaysian evidence

According to research, accounting narratives are frequently utilized and valued in the investing choices of both individual and institutional investors. Nevertheless, slight study has examined on the association between internal corporate governance mechanisms and impression management (IM). Rely on theories like agency and signaling, this research investigates the impact of board chairman qualities, characteristics of board of director, ownership structure and characteristics of audit committee on IM. The research population consists of non-financial Malaysian companies listed on Bursa Malaysia’s Main Market. The study uses ordinary least squares (OLS) regression to test the direct relationships directors’ chairman characteristics and impression management. Moreover, robustness and sensitivity test were used to examine the effectiveness of chairman characteristics with IM. This study finds that board of directors’ characteristics has significant association with IM. Moreover, characteristics of board chairman, audit committee and ownership structure has impact significant on IM. In addition, this study demonstrates that the effectiveness of the chairman and board of directors has a considerable impact on IM. Giving the right parties—policymakers, standard-setters, and regulatory bodies—a reference point to use as they work to enhance the caliber of financial reporting quality (FRQ) and corporate governance practices in light of the study’s findings aids in raising awareness of IM practices and internal corporate governance mechanisms among Malaysian listed companies.

Audit Committee and Performance: Evidence from Kenyan Deposit Taking Saccos

This research examined the effect of Audit committee characteristics on performance of Deposit Taking Saccos in Kenya. Audit committee characteristics was measured by independence, terms of service and study specialization as proxy. The study was guided by the Agency Theory and adopted descriptive cross-sectional survey and correlational research designs. A sample size was 108 licensed Deposit Taking Saccos drawn from a target population of 175. Primary data was collected from the board members and management executives. The analysis was done using descriptive statistics and multiple regressions. The study findings suggest that the overall correlation coefficient for Audit Committee characteristics and performance was found to be 0.144 with a p-value of 0.143> =0.05. This implies a weak positive and insignificant relationship between Audit Committee characteristics and performance. Based on findings, the study recommends proper constitution of audit committee with well spelt out terms of service and a consideration be made on appropriate study specialization. Independence of audit committee must be complied with to ensure conformity to best standards of practice. Areas for further studies suggested are conducting studies in other contexts to corroborate these findings and consideration of effect of other variables of Audit Committee characteristics on the performance.

Corporate Governance and Corporate Political Responsibility

This study investigates the pivotal policy question of whether a firm’s corporate governance influences its political spending disclosures. Using a sample of S&P 500 firms from 2011 to 2019, we find empirical evidence that a board of directors’ monitoring and resource provision roles affect a firm’s political spending disclosure. Extending agency theory-driven expectations, we provide evidence that measures of a board’s monitoring role such as female monitoring directors, shorter board tenure, audit committee size, audit committee meetings, and audit committee education enhance a firm’s political spending disclosures. Second, drawing from resource dependence theory and examining a board’s resource provisions, we find evidence that female advisory directors, CEO duality, additional directorships, and audit committee characteristics (i.e., size, number of meetings, age, and education) promote political spending disclosures. The study contributes to corporate governance and corporate political activity literatures by outlining different types of governance that may drive a firm’s political spending disclosures, a key component of a firm’s political responsibility.

Corporate governance in Kuwait: joining the dots between regulatory reform, organisational change in boards and audit committees and firm market and accounting performance

PurposeThis study aims to examine the link between boards and audit committees and firm performance in Kuwaiti listed firms in the context of recent and extensive corporate governance regulatory reform.Design/methodology/approachPanel data regression analysis with fixed effects and clustered standard errors of firm performance for 61–97 listed industrial and services firms in Kuwait over a seven-year period. The dependent variables are the returns on assets and equity, the debt-to-equity ratio and leverage and Tobin’s Q and the independent variables comprise board of directors and audit committee characteristics, including size, the number of meetings and the numbers of independent and outside board and expert committee members. Firm size, subsidiary status and cash flow serve as control variables.FindingsMixed results with respect to the characteristics of the board of directors. Board size and independent and outsider board members positively relate only to Tobin’s Q and insiders only to debt to equity. For audit committee characteristics, committee size, independence and expertise positively relate to the return on equity and committee size and expertise only to Tobin’s Q. Of the five performance measures considered, board and audit committee characteristics together best determine Tobin’s Q.Research limitations/implicationsData from a single country limits generalisability and control variables necessarily limited in a developing market context. Need for qualitative insights into corporate governance reform as a complement to conventional quantitative analysis. In combining accounting and market information, Tobin’s Q appears best able to recognise the performance benefits of good corporate governance in terms of internal organisational change.Practical implicationsThe recent corporate governance code and guidelines reforms exert a mixed impact on firm performance, with audit committees, not boards, of most influence. But recent reforms implied most change to boards of directors. One suggestion is that non-market reform may have been unneeded given existing market pressure on listed firms and firms anticipating regulatory change.Social implicationsKuwait’s corporate governance reforms codified corporate governance practices already in place among many of its firms in pursuit of organisational legitimacy, and while invoking substantial change to audit committees, involved minor change to firm performance, at least in the short term. Some firms may also have delisted in expectation of stronger corporate governance requirements. Regardless, these direct and indirect processes both improved the overall quality of listed firm corporate governance and performance in Kuwait.Originality/valueSeminal analysis of corporate governance reforms in Kuwait, which have rapidly progressed from no corporate governance code and guidelines to an initially voluntary and then compulsory regime. Only known analysis to incorporate both board of directors and audit committee characteristics. Reveals studies of the corporate governance–firm performance relationship may face difficulty in model specification, and empirical significance, given the complexity of corporate governance codes and guidelines, leads in changing firm behaviour and self-selection of firms into and out of regulated markets.

Audit Committee’s Characteristics and the Cost of Debt

Abstract Objective This paper examines the association between audit committee characteristics and the cost of debt, with the aim of gaining new insights on how this corporate governance mechanism contributes to the reduction of debt costs. Methodology Using a sample of FTSE 100 companies listed in 2018 and 2019, our study investigates how audit composition and characteristics, such as financial and industry expertise, gender, tenure and diligence affect audit committees’ oversight role, and therefore the impact on the companies’ level of risk and the cost of debt. Findings The results show that overall audit committee’s characteristics do not impact the corporate cost of debt, except for the gender of the audit committee’s chair. Companies with audit committees managed by a chairwoman experience a lower cost of debt. The results also confirm that external auditors influence the cost of debt. As additional test, we conducted a principal component analysis to construct a corporate governance index of audit committee´s characteristics, and we obtained similar results. Overall, the study results seem to suggest that the cost of debt is more significantly influenced by external auditors than by the characteristics of the audit committee. Value Added This paper contributes to the literature on corporate governance by showing how audit committees characteristics affect the cost of debt. Recommendations This study improves the understanding of the way debtholders may assess audit committee’s characteristics and auditors when assessing companies’ financial risk and the corporate cost of debt.

The determinants of audit fees in the alternative investment market (Aim) in the UK: Evidence on the impact of risk, corporate governance and auditor size

This study examines the determinants of audit fees for companies listed on the Alternative Investment Market (AIM) in the United Kingdom (UK), which is the secondary market of the London Stock Exchange for small and medium sized companies. AIM companies are expected to present different audit pricing challenges compared to fully listed firms. From an audit demand perspective, AIM companies exhibit different risk and governance characteristics while, from a supply perspective, the AIM is characterized by greater auditor choice than typically found in main markets. We find that audit fees in the AIM are negatively influenced by client liquidity and the length of listing. We also find that higher levels of audit committee disclosures are associated with higher fees, although there is no evidence that individual audit committee characteristics influence audit fees. After controlling for self-selection bias, we find that Big 4 auditors charge higher fees and this premium is especially pronounced for smaller firms. Our findings contribute to the audit pricing literature by illustrating that the determinants of audit fees depends on the institutional setting in which companies operate as well as highlighting the importance of specific risk measures and auditor size in the determination of audit fees for AIM companies.

The effect of audit committee characteristics on earnings management in Nigerian listed firms

This study focuses on the effect of audit committee characteristics on earnings management among Listed Firms in Nigeria with aim to ascertain whether audit committee characteristics has effect on earnings management. Audit committee in an organization is to support firm’s governance and oversight functions with the regard to financial reporting, risk management system internal control structure, ethical accountability and internal and external audit functions. Earnings management is an attempt by managers to alter financial information either for their private gain or for the gain of stockholders. The study population was 190 firms listed in the Nigerian Stock Market. The study sample was 150 firms because 40 firms could not provide the needed data for the study as at 2014 to 2019. The study data was generated from the Thomson Reuters Data stream and other variables were handpicked from the firm’s annual reports covering the period of 2014–2019. A Generalized Least Square (GLS) estimator was used in estimating the parameters. The study provides positive and significant relationship between Audit Committee Independence (ACIND), Audit Committee Meetings (ACMT) and Earnings Management of listed Nigerian Firms in Nigeria. However, negative relationship between Audit Committee Size, Audit Committee Financial Expertise, Firm Size and Earnings Management was reported among the Listed Firms in Nigeria. Policy maker should provide policy on the composition of Audit for the committee members to clearly spelt out to enable members perform their functions effectively. Further study should look at diversity of audit committee, ethnicity, and religious influence because of the Nigerian diversity on ethnicity and religion.

Does audit committee characteristics a driver in risk disclosure?

Risk disclosure is one of the practices of corporate governance. Disclosure of risk is an important aspect of a company’s financial reporting since it provides information on how various risks can occur, the company’s response to these risks, and the impact these risks have on the company’s future. By sharing risk information, the corporation has attempted to be more transparent in delivering information to its stakeholders. Based on risk disclosure information, stakeholders are anticipated to make better judgments. This study aimed to examine the influence of audit committee characteristics on risk disclosure. This analysis includes 202 bank statements from 2017 to 2021, the observation period for banks listed on the Indonesia Stock Exchange. Regression was used for data extracted from annual reports, corporate governance reports, and company websites. The results demonstrated that the audit committee’s expertise positively impacted risk disclosure. Risk disclosure is unaffected by the size and frequency of the audit committee. The audit committee plays a crucial role in providing information regarding risks; therefore, the corporation must pay close attention to the audit committee’s quality. The knowledge of audit committees with a background in accounting or financial education can promote risk disclosure.

Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality

AbstractWe investigate whether the characteristics of audit committee (AC) chairs are associated with decisions about auditor choice, audit fees and audit quality. Using hand‐collected Australian data, firms with AC chairs who have longer tenure and multiple AC memberships across several boards are found to be more likely to choose Big 4 and/or industry specialist auditors, pay higher audit fees and have lower discretionary accruals. Those AC chairs with higher business qualifications are more likely to hire a Big 4 auditor, pay higher audit fees and have lower discretionary accruals, while AC chairs with professional qualifications are more likely to hire a Big 4 and/or industry specialist auditor. In contrast, firms with AC chairs who are executive directors are less likely to hire a Big 4 auditor and have higher discretionary accruals. Our findings contribute to the literature by documenting that various characteristics of AC chairs are important for enhancement of auditor selection and audit quality.

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.

Audit committee characteristics and firm performance in Jordan: The moderating effect of board of directors’ ownership

The study examines whether audit committee (AC) characteristics influence firm performance, and whether this relationship is moderated by board of director’s (BOD) ownership. The sample is listed manufacturing firms in Jordan. AC characteristics, as an indicator of corporate governance mechanism, include its size, meeting frequency, independence, and experience. Firm performance is proxied by return on assets (ROA). Thirty firms are included in the sample. Data are collected from 2015 to 2021 for a total of 210 observations. The first model indicates that AC meetings and independence positively and significantly influence firm performance. On the other hand, AC size is not a significant predictor of firm performance. The second model shows that the interaction effects (AC size, AC independence, and AC experience) are significant and positive on firm performance. The results provide insights on how to improve AC effectiveness so as to improve the performance of listed manufacturing firms in Jordan. They also suggest the significance of BOD ownership in enhancing internal corporate governance mechanisms, particularly the AC. Jordanian policy makers must therefore ensure the effectiveness of these mechanisms, especially AC, through relevant regulations and recommendations.

Audit committee characteristics and Sustainable Development Goals: Evidence from the Gulf Cooperation Council

This paper provides empirical evidence on the relationship between audit committee (AC) characteristics and Sustainable Development Goals (SDGs) disclosure in 34 financial companies listed on the Muscat Stock Exchange (MSX) in Oman. Using content analysis and multiple regression analysis on a dataset from 2016 to 2020, obtaining 170 years-observations, the study assesses the attributes of corporate ACs that drive the level of SDG disclosure. The findings reveal that AC attributes such as independence, financial expertise, and overlapped directorships positively influence SDG disclosure. Conversely, the frequency of AC meetings and the proportion of foreign directors negatively affect SDG disclosure. Notably, the presence of female directors does not significantly impact SDG disclosure. These results have implications for policymakers, regulators, and practitioners seeking to enhance sustainable development practices. By understanding the role of specific AC characteristics, organisations can improve SDG reporting, bolster transparency, and advance accountability toward SDGs.

The impact of top management team heterogeneity on book-tax differences: An analysis using institutional perspective

The aim linked with the ongoing article is to examine the role of top management team heterogeneity along with audit committee characteristics on the book-tax difference of the Jordanian listed firms. The data has been extracted from the eighteen listed companies from 2009 to 2021 that are listed on the Amman Stock Exchange. To test the hypotheses, a fixed-effect model along with the robust standard error model has been executed. The results revealed positive linkage among the top management team heterogeneity, audit committee characteristics, and book-tax difference of the Jordanian listed firms. These findings are suitable for the regulators who want to develop new policies related to the book-tax difference and top management team heterogeneity along with the new researchers who want to investigate this area in the future.

Audit committee characteristics and the audit report lag in Greece

We review prior empirical studies that investigate the effect of audit committee characteristics on audit report lag and provide insights about this corpus of scholarly literature. We also determine whether these audit committees’ compositional features are associated with audit report lag in the context of an emerging market (Greece). Using a unique set of data hand-collected from the annual reports for 130 firms listed on the Athens Stock Exchange, a multiple regression analysis is conducted to identify and explain this association. This analysis identifies the four audit committee characteristics most frequently mentioned in the literature. By empirically examining these, we demonstrate that audit committee diligence is associated with a shorter audit report lag. The results generally satisfy a number of alternative benchmark tests that control for different types of proxies and transformations of audit report lag. Our results could assist practitioners and/or policy makers in perceiving the efficacy of audit committee diligence as a means to improve the timeliness of financial reporting. This is, to the best of the authors’ knowledge, the first study that provides a synopsis of the prior literature and examines this relationship in the Greek context.

Characteristics of ACs and their impact on the period of issuing the auditor’s report: An Empirical study on Jordanian public shareholding companies

This study aimed to examine the characteristics of audit committees (ACs) on the short delay in issuing audit reports. Using data for 97 companies in the industrial and service sectors in the Jordanian context, for the period between 2017 and 2021. The results of this study showed that the independence of ACs has an important and negative impact on reducing the delay in issuing financial reporting (FR). However, the study did not find the importance of the rest of the characteristics related to ACs to reduce the delay in issuing audit reports between Jordanian companies. The study concluded that the mechanisms of corporate governance in Jordanian companies are not effective, compared to the more developed countries. Thus, policy makers are supposed to enforce governance practices in Jordanian companies in substance, rather than simply adhering to practices in form.