Audit Committee Characteristics Research Articles

Intellectual capital and corporate governance: an evaluation of Oman's financial sector companies

PurposeThe purpose of this study is to empirically investigate the relationship between intellectual capital and corporate governance of Oman's financial sector companies. Intellectual capital has been found to successfully contribute to the economic wealth creation of firms in germane literature. Unfortunately, financial statements do not necessarily capture and reflect the contributions of intellectual capital, thereby leading to an information asymmetry between companies and users of financial statements. The research also investigates the relationship between corporate governance and intellectual capital efficiency across various financial subsectors.Design/methodology/approachData are collected from annual reports available on Muscat Securities Market for 31 listed financial sector companies for the period 2012 to 2016 and analyzed using a multiple regression model. Intellectual capital is measured using Pulic's efficiency measure of value-added intellectual coefficient (VAIC). Corporate governance individual components such as board characteristics, audit committee characteristics and ownership structure are presented as independent variables.FindingsThe findings suggest that board size and frequency of audit committee meetings have a significant association with the intellectual capital efficiency of Oman's financial sector. VAIC and human capital efficiency of banks are also significantly influenced by most of the corporate governance mechanisms; however, other subsectors do not report such findings. Corporate governance of banks in comparison to other subsectors effectively engages in utilizing the potential of intellectual capital efficiency. Agency theory and resource dependency theory find limited support as a result of this study. The GMM results are not robust to the alternative instruments.Research limitations/implicationsThe sample size is small as the study is limited to the listed financial sector of Oman. Future studies can be extended to include all of Oman's or GCC’s listed companies. Additionally, the intellectual capital is measured using the construct of VAIC which suffers some limitations and can be overcome using other tools such as content analysis.Practical implicationsThe findings of this study suggest that Oman's regulators can create an awareness strategy on highlighting the importance of intellectual capital for companies (board of directors and managers), investors, debtors and creditors. Further, Oman's Capital Market Authority and Muscat Securities Market need to strengthen the regulations related to intellectual capital.Originality/valueThis study extends intellectual capital and corporate governance literature by presenting the research outcome for Oman's financial sector. It is useful for Oman's financial sector companies to direct corporate governance measures for driving value creation of firms through the management of intellectual capital efficiency.

Earning Management and the Effect Characteristics of Audit Committee, Independent Commissioners: Evidence From Indonesia

This study examines whether companies listed Indonesia Stock Exchange conduct efficient or opportunistic earning management and to investigate the effect the Independent Commissioner and the Characteristics of the Audit Committee (measured by Auditor Size, Independence, Expertise, and Activities) on it. The sample consists of 186 observations of manufacturing companies in Indonesia Stock Exchange during the 2013-2018. Using Panel Regression Fixed Effect method, we find evidence that Independent Commissioners has a significant effect on reducing Earnings Management. The Positive Accounting Theory-the efficient perspective occurs when the compensation contract and internal control system, including monitoring by the board of commissioners, will limit the common view opportunistic manager and motivate the manager to choose the right accounting policy. The effective monitoring conducted by an independent commissioner can reduce agency costs because management prioritizes the best interest of shareholders by maximizing company resources. Furthermore, it was found that Audit Committee Size can reduce earning management. It is due to the wide range of skills of audit committee members in exercising oversight on management. Audit Committees with accounting and financial expertise can reduce earnings management. This finding indicates that the Audit Committee may tend to uphold conservative as accounting mechanism. Accounting conservatism has an important role in restricting opportunistic management behavior.

The Relationship Between Audit Committee Characteristics and Financial Performance of Listed Banks in Ghana

This study presented a description of the performance of eight banks listed on the Ghana stock exchange using return on equity and return on asset as performance indicators. It also presented aggregate information on the performance of these eight banks over a five-year period. It further analyzed the association between performance and audit committee size, independence, audit committee members’ expertise and experience and gender diversity of the audit committee. Audit committee size and the expertise and experience of audit committee members was found to be positively correlated with return on equity. However, the independence of the audit committee members and gender diversity of the committee had a negative correlation with return on equity. Similarly, audit committee size and the expertise and experience of audit committee members correlated positively with return on asset. However, audit committee independence and gender diversity had a negative correlation with return on asset. This means in response to the hypothesis; ROE is positively related to audit size and the audit members’ expertise and experience but negatively related to audit committee independence and gender diversity of the audit committee. Similarly, ROA is positively related to audit size and the audit members’ expertise and experience but negatively related to audit committee independence and gender diversity of the audit committee. Keywords: Audit committee, Return on Assets, Return on Equity, Financial Performance DOI: 10.7176/RJFA/11-10-03 Publication date: May 31 st 2020

Women on audit committees and the relationship between related party transactions and earnings management

AbstractOur results indicate a negative relationship between related‐party transactions (RPT) and earnings management, but a significantly positive relationship between discretionary accruals and the presence of a woman chairing the audit committee. While we observe a positive relationship between RPT volume and earnings quality, we fail to find any relationship between other audit committee characteristics and the latter. One significant result in the article is the positive relation between promoter presence on the audit committee and poor earnings quality. This article documents, for the first time, such a relationship from the perspective of an audit committee, at least in the Indian context.

Audit Committee Characteristics and Investors’ Stake in Nigerian Quoted Companies

Financial scandals that occurred in the early 21st century have put to test the integrity of financial reports that relay the performance of an entity to its investors. The audit committee has been argued in the extant literature as a factor that can put to rest the prevalence of these scandals. Nevertheless, these scandals still recur. This study investigated the nexus between audit committee qualities and investors’ stake in quoted companies in Nigeria. Ex-post facto was adopted as the research design, while the Fixed Effect Panel Analysis and Pairwise Granger Causality Test were used to analyze the data. The results of the Fixed Panel Analysis revealed that the financial expertise, audit committee meetings, numbers of non-executive directors on the audit committee, audit committee size, and the proportion of nonexecutive directors on the board of the selected companies demonstrated an insignificant effect on investors’ stake in the selected quoted companies in the country, while the Panel Granger Causality Test revealed unidirectional causality between earnings per share and proportion of non-executive directors of the company’s board in selected quoted companies in Nigeria. This study concluded that audit committee quality has affect on investors’ stake depending on the qualities adopted by the audit committee. Based on the above, the study recommended among other things, that the management and government should devise internal control mechanisms or strategies that will ensure the suitability of who could act as an independent nonexecutive director to a company. KEYWORDS: Audit Committee Qualities, Performance, Earning per Share, Standard Variance, Stakeholders.

The Relationship Between Audit Committee Effectiveness and the Level of Corporate Risk Disclosure: The Relevance of Pre-and Post-Mccg 2012

This study examined the relationship between audit committee effectiveness and the level of corporate risk disclosure amongst Malaysian listed companies pre- and post-Malaysian Code of Corporate Governance 2012. Content analysis was employed. A total of 122 firm-year observations was examined in order to measure the extent of risk disclosure against audit committee effectiveness. The findings reveal only audit committee size and diligence are significant in explaining the variations in corporate risk disclosure for pre- and post-MCCG 2012. This indicates that audit committee size does matter in assisting the revelation of corporate risk disclosure. It also signifies that audit committees are responsible and discharge their duties accordingly with reference to the higher number of audit committee meetings. An unexpected result was also found in this study where an inverse relationship was detected between audit committee independence and corporate risk disclosure. The result is contrary to the requirement of MCCG 2012 that emphasizes the importance of an independent director under its Principle 3.5. Further, the result also shows that the audit committee effectiveness have increasing in the post-MCCG 2012 period compared to pre-MCCG 2012 in determining the extent of risk disclosure of the sampled firms. KEYWORDS: Corporate risk disclosure, audit committee characteristics, financial report, corporate governance

Analisis Pengaruh Karakteristik Komite Audit dan Struktur Kepemilikan terhadap Manajemen Laba pada Perusahaan yang Terdaftar di Bursa Efek Indonesia

This research is conducted to determine the impact of audit committee characteristics and ownership structures on earnings management of companies listed on Indonesian Stock Exchange (IDX). This research used 324 companies listed on IDX in the period 2011-2015 as the sample. The results of this study indicate that institutional ownership, firm size, return on asset, and operating cash flow show the significant impact on earnings management in both positive and negative ways. On other hand, the results also indicate that the independence, diligence, and size of audit committee, foreign ownership, managerial ownership, governmental ownership, individual ownership, and leverage are not able to affect earnings management activity significantly.

Corporate Governance and Financial Ratios Effect on Audit Report Lag

Objective – the timeliness of financial statement submission becomes important in decision making. With the growing importance of timely financial statements for the relevance of decision making, an understanding of the determinants of audit report lag becomes necessary. This research intends to obtain empirical evidence that corporate governance through board and audit committee characteristics, specifically size, meetings, independence and expertise has an influence on audit report lag. Financial ratios through firm size, profitability and leverage are tested to determine their influence on audit report lag. Methodology/Technique – Hypothesis tests with multiple regression are used with non-financial firms listed on the Indonesian Stock Exchange between 2015 to 2017. This research uses purposive sampling with the result of 204 companies sampled and 612 data sets used in the model. Findings – The result of this research show that board size, board meetings, board independence, audit committee size, firm size and profitability all have an influence on audit report lag. Meanwhile, audit committee independence, audit committee expertise, and leverage have no influence on audit report lag. Type of Paper: Empirical Keywords: Board Characteristics; Audit Committee; Financial Ratio; Audit Report Lag. Reference to this paper should be made as follows: Firnanti, F; Karmudiandri, A; 2020. Corporate Governance and Financial Ratios Effect on Audit Report Lag, Acc. Fin. Review 5 (1): 15 – 21. https://doi.org/10.35609/afr.2020.5.1(2) JEL Classification: M40, M41, M49 _______________________________________________________________________________________

The Effect Double Job of Audit Committee Member in Remuneration Committee on Audit Fees

The purpose of this study is to examine the effect of double job member of audit committee in remuneration committee on audit fees. This study refers to the Kalerkar (2012), by modifying the use of control variables and research samples. The dependent variables of this study is audit fees, the independent variable is double job in membership of audit committee at remuneration committee, this study also uses control variables to determine audit fees, there are audit risk, audit complexity, auditor characteristics, and audit committee characteristics. This study uses secondary data from annual reports and financial reports of all banking sector companies listed on the Indonesia Stock Exchange (IDX) in 2014-2017. The research sample was taken by purposive sampling method. The total sample in this study is 41 companies. The analysis method used in this study is the multiple linear regression analysis. The results of this study indicate that double job in membership of audit committee at the remuneration committee negatively affects the price of audit fees.
 Keywords: Audit Fees, Audit Committee, Remuneration Committee, Double job member of audit committee in remuneration committee.

감사위원회의 특성이 선도형 경영전략을 채택하는 기업의 공격적 이익조정 수준에 미치는 영향

감사위원회의 특성이 선도형 경영전략을 채택하는 기업의 공격적 이익조정 수준에 미치는 영향

The Audit Committee Effectiveness: An Empirical Work on Turkish Financial Industry

The major aim of this empirical work is to examine Audit Committee Effectiveness (ACE) from the perspective of financial institutions listed at Borsa Istanbul (BIST) and regulated by Banking Regulation and Supervision Agency (BRSA). A questionnaire is designed by using the Likert Scale with the principle of measuring attitudes by asking the professionals working in the board of directors, audit committees, risk committees, risk management, compliance units, internal audit, and/or internal control functions of financial institutions in Turkey. This questionnaire is developed to analyze their response to a series of statements about the characteristics of Audit Committee Effectiveness (ACE). Structural Equation Model (SEM) approach is used for the survey data and policy recommendations are made depending on the empirical results. The research findings reveal that the characteristics of an effective audit committee are an essential instrument for the board of directors. The empirical findings challenge key public expectations of Audit Committees, including the notion of ‘management oversight and performance evaluation’. The study highlights the potential for corporate governance in financial institutions to consider the contribution of audit committee members within the context of promoting the best corporate governance practice.

The Role of the Audit Committee On the Performance of Indonesian State-Owned Enterprises (BUMN) Registered on the Indonesia Stock Exchange

It has never been thoroughly investigated whether the existence of the Audit Committee on the SOE board of commissioners is truly as beneficial as expected. Based on research that has been done, there is still a diversity of opinions regarding the effect of audit committee characteristics on company performance. The purpose of this study is to study whether audit committee size and number of audit committee meetings affect company performance. The grand theory of this research is agency theory or agency theory and corporate governance. This research uses quantitative research methods. Data processing is performed using eviews 9. The unit of analysis is the company. The sample is 20 (twenty) SOEs registered on the Indonesia Stock Exchange from 2013 to 2018. The sample must also be BUMN that has a complete Audit Committee report. The results showed that the number of chairpersons and members of the audit committee had a positive effect on company performance, the number of audit committee meetings had no significant effect on company performance, and the size of the company had a significant negative effect on company performance.

The Impact of Audit Committe Characteristics on Audit Quality

This research was conducted to investigate the effect of audit committee characteristics on audit quality. The characteristics of the audit committee used in this study are the number of audit committees, number of audit committee meetings, audit committee education background, and audit committee experience while audit quality is measured using audit fees. This study uses manufacturing companies listed on the Indonesia Stock Exchange in 2016 - 2018 with 70 observation data and uses OLS regression. The results of this study indicate all four Audit Characteristics, only size and experience significantly influence audit quality. While audit meetings and education do not significantly affect audit quality. Likewise with the education that can not ensure the capabilities possessed by members of the audit committee. Overall, the effectiveness of the audit committee has no significant effect on audit quality.

Audit Committee Characteristics and Financial Performance: Indonesian Evidence

This research investigates the effect of audit committee characteristics, which includes independence (ACIN), size (ACSIZE), competence (ACCO), and frequency of meetings (ACMT) on the financial performance (PERF) of manufacturing firms listed on the Indonesian Stock Exchange for the year of 2016 and 2017. PERF is measured and proxy with the return on assets (ROA); ACIN is measured by the percentage of members from outside the company; ACCO is measured using percentage of audit committee members who have accounting and finance educational background; and ACMT is measured using the number of audit committee meetings in 2016 and 2017. The study finds that all of the characteristics of audit committee positively affect the company's performance. The research also uses three control variables, which are the quality of auditors (BIG4), financial leverage (LEV) and company size (SIZE). BIG4 and LEV positively affect the company's financial performance, while the financial performance of the company is negatively affected by SIZE.

Audit committee characteristics and tax aggressiveness

PurposeThis study aims to analyze the relationship between a company’s use of aggressive tax planning and several audit committee members’ characteristics, namely, independence, expertise, diligence and gender diversity.Design/methodology/approachThis paper is an empirical research using archival data from 289 Canadian listed companies for the 2011-2015 period.FindingsThe authors find that measures of expertise and diligence are significantly related to tax aggressiveness. Financial expertise and tenure on the audit committee play an important role in constraining tax aggressiveness, as does having a larger audit committee.Research limitations/implicationsOne limitation – and an area for future research – is that the effects of the audit committee members’ relationships with managers of the firms were not investigated.Practical implicationsKnowledge of audit committee characteristics may send a signal to shareholders, investors and tax agencies regarding the company’s potential risk with respect to aggressive tax planning. The analysis provides useful insights for board governance committees when determining the profile of persons to nominate for board positions and committees. In discussing tax-risk management, the study may heighten audit committee members’ awareness of their role in this respect.Originality/valueThis study’s results indicate that even in a setting where incentives for firms to be tax-aggressive is low compared to high-tax rate countries, there is variability in firms’ tax aggressiveness. This situation allows us to find audit committee characteristics that are effective in decreasing tax aggressiveness.

CEO financial background and internal control weaknesses

AbstractResearch question/issueThe existing literature documents that the functional expertise of Chief Executive Officers (CEOs) in finance reduces poor performance risk, improves financial reporting quality, and mitigates audit risk. In this study, we examine the association between CEOs' financial background and internal control weaknesses (ICWs).Research findings/insightsUsing a sample of Iranian listed companies for the period 2007–2017, we find a significant negative association between CEOs with financial expertise and ICWs. Furthermore, we show that the negative association between CEO financial expertise and ICWs is stronger if the CEO is recruited from inside the firm. Our main results are robust after controlling for the potential selection issue, random effects at the firm level, and the impact of the new Iranian internal control regulations. Moreover, our results remain unchanged after controlling for other CEO characteristics, audit committee characteristics, audit fees, and using an alternative measure of financial expertise.Theoretical/academic implicationsOur study contributes to the extant literature by examining the association between CEOs' financial background and ICWs, a theme that remains largely unexplored in previous research. We also extend the literature on CEO succession origin.Practitioner/policy implicationsThis study has important implications for regulators regarding the improvement of financial reporting quality and the effectiveness of internal controls, especially in the emerging markets. Particularly, our findings may be of benefit to auditors when assessing the risks regarding their clients' material weaknesses, as well as to shareholders and boards of directors when hiring a new CEO.

Board Audit Committee Characteristics and Financial Performance of Selected Commercial Banks in Ghana

The purpose of the study was to examine the influence of board audit committee characteristics on the financial performance of selected commercial banks in Ghana during the period of 2008 to 2017. The correlational design was employed. The study population was 23 commercial banks licensed under the Bank and Special Deposit Taking Institution Act with audit committee on their board and offices in Ghana as at December 2018. The sample size for the study was 13 commercial banks in Ghana. The lottery method of simple random sampling technique was used to select the 13 banks. The study made use of only secondary data. Statistical tools such as means, standard deviations, Pearson product moment correlation, and linear multiple regression analysis were used to analyse the data. The findings of the study revealed that when banks audit committee increase the frequency of their meetings, increase the number and quality of financial qualifications of member on board and also increase the size of the audit committee members on total board membership, it will have a significant influence on the banks’ financial performance. It was recommended to Bank of Ghana (BoG) and managers of the various commercial banks to ensure that audit committee members are independent, meaningfully represented at boards of the banks, and are people with expertise in accounting/finance.

Effects of Audit Quality and Audit Committee Characteristics on Earnings Management During the Global Financial Crisis – Evidence from Australia

Purpose: We examine the earnings management behaviour of Australian firms during the Global Financial Crisis (GFC) and the effectiveness of audit quality and audit committee characteristics in mitigating such behaviour. Design/methodology/approach: The sample consists of 503 firm-year -observations spanning from 2006 to 2009. The years 2008 and 2009 are considered as the global financial crisis period. Discretionary accruals have been used as the proxy for earnings management. To test the hypothesis, we apply multivariate fixed effect regression to test the hypothesis. As the robustness test, we use propensity matching score, to find out comparable clients audited by Big-4 and Non-Big-4 audit firms to control observations to mitigate the effect of selection bias. Findings: We find that the sampled firms engage in a significantly higher level of earnings management during the GFC compared to the pre-crisis period (PCP). We find that audit quality, in terms of being audited by Big4 auditors, constrains earnings management during the PCP, but not during the GFC. Audit committee independence has a significant mitigating effect on firms' earnings management, while audit committee members' accounting and finance expertise do not constrain earnings management. Research limitations/implications: Future research can include a larger sample and examine the effects of other corporate governance variables on earnings management during periods of macroscopic shocks. Practical implications: Our findings support the importance of having independent directors in the audit committee. Moreover, the fact that Big4 auditors do not constrain earnings management during the GFC although constraining it during the PCP implies that regulators and policy makers should concentrate more on the audit committee for effective mitigation of earnings management during periods of macroeconomic shock. Originality/value: A key policy implication of the findings is that regulators and standard setters may need to shift their focus from the quality of a firm's auditor to encouraging well-functioning audit committees. The specific action to promote audit committee effectiveness includes mandating independence.

Audit committee characteristics and earnings conservatism in banking sector: empirical study from GCC

We examine four audit committee characteristics, including the audit committee independence, size of audit committee, audit committee diligence and financial experience of the audit committee members to identify if any of these characteristics differentially impact the earnings conservatism. The sample included 59 banks from Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates during the period of 2012–2016. To achieve this goal, the study measures earnings conservatism using market-to-book approach. By using panel fixed-effect regression, our analysis reveals that bigger audit committees with more independence and members with financial experience are more likely to be associated with earnings conservatism in GCC banks. We also find that the audit committee diligence has no impact on earnings conservatism.

The effect of audit committee characteristics on earnings management: the case of Indonesia

We investigate the effectiveness of audit committee in mitigating earnings management in the context of Indonesia. Audit committee is expected to reduce earnings management. This study examines the effect of several audit committee characteristics: independence of audit committee members, number of audit committee members, number of meetings, expertise in finance and gender on earnings management. We study 393 Indonesian listed firms during the 2006-2010 period. Results show that female member(s) of audit committee mitigate earnings management. However, financial expertise and number of meetings have positive effect on earnings management. This result shows that both variables might not be effective to constraint earnings management. On the other hand, number of audit committee members and independence of audit committee member do not have any significant influence on earnings management. Further, this study shows that audit firms and leverage have negative effect on earnings management. However, institutional investors tend to push earnings management higher and growth has no significant effect on earnings management.