Role Of Audit Committee Research Articles

Management’s and auditors’ disclosures of significant accounting estimates and the role of audit committees

We examine whether introducing the ISA 701 to improve audit reports has created spillover effects on the closely related management disclosures of significant accounting policies and estimates. Based on a sample of Swedish listed firms (2013–2018), we investigate the number of items and risk-related words in management disclosures, and how they relate to auditor disclosures of key audit matters (KAMs). We observe that since the introduction of the ISA 701, managers disclose more risk-related words, but this increase is significantly higher in firms with a separate audit committee on the board. Further, we discover that a positive relationship exists between managers’ and auditors’ disclosures in terms of the number of accounting items and risk factors. This correspondence is also greater for firms with audit committees. We also provide evidence for the positive effect of audit committees’ financial expertise on management disclosures. Additional analyses further investigate the determinants of KAM disclosures, reveal that a relationship exists concerning the uncertain tone of disclosures in firms with audit committees, and address any potential endogeneity related to the selection bias of firms with audit committees using the propensity score-matching technique.

The relevance of fair value after the adoption of IFRS 13: fair value measurement and the role of audit committee

The relevance of fair value after the adoption of IFRS 13: fair value measurement and the role of audit committee

The Role of Audit Committees in Limiting Earnings Management: An Empirical Study of Saudi Corporations

This study aims to measure the impact that audit committees have on earnings management for companies listed on Tadawul Stock Exchange. The sample includes firms in the basic materials sector for the years 2017 and 2018. The modified Jones model is used to investigate the impact of audit committee characteristics (independence, financial expertise, size, number of meetings, and percentage of shares owned) on earnings management. The results show that the greater the audit committee’s independence, percentage of shares owned, and number of meetings held contribute to limited earnings management. However, no evidence is found to support that financial experience or audit committee size have an impact on earnings management.

Audit committee interlocking and internal controls over financial reporting: an examination of different audit committee roles

This study investigates the relationship between audit committee (AC) interlocking and the effectiveness of internal controls over financial reporting (ICFR) while differentiating between chair and non-chair connections. Chen et al. (2017) point out that the effect of corporate governance on the system of internal controls has been largely overlooked by extant research. Khemakhem and Fontaine (2019) discuss the fact that the audit committee chair role, while key in corporate governance, is largely ignored by researchers. The results show that the effects of interlocks vary based on the interlocking medium, where companies are more likely to have effective ICFR if they are interlocked through the AC chair with other companies that have effective ICFR. No significant impact is observed for interlocks through the non-chair members. Furthermore, the results do not show a significant relationship for interlocks with companies with ineffective controls.

Audit committee interlocking and internal controls over financial reporting: an examination of different audit committee roles

Audit committee interlocking and internal controls over financial reporting: an examination of different audit committee roles

A Comparative Study on Approaches to the Independence of Outside Directors and Audit Committee in Korea and the U.S.

There have been debates on adoption of corporate laws regarding electing independent audit committee members separately and double derivative suit, as well as mandatory cumulative voting to improve corporate governance in Korea. This article examines whether mandatory or market based approaches are desirable to improve corporate governance in Korea. It will explore the ways to strengthen the independence of the board of directors and audit committees. Firstly, this article studies the independence of outside directors in the U.S. and Korea. The independence of the board of directors has been weak in Korea due to controlling shareholders and circular share-holding ownership structure among big business groups, even though there have been attempts to improve this situation. Secondly, this article examines the current role of outside directors, audit committees, and cumulative voting in the U.S and in Korea to find out positive changes in corporate governance Korea. Lastly, his article will discuss the appropriate direction between mandatory and market based soft law approaches on corporate governance in Korea. It will argue that Korea needs to strengthen the monitoring function of the board of directors, independence of outside directors and audit committee.

Sustainability Reporting: The Moderating Role of Audit Committee on Financial Performance

Sustainability reporting is a tool for companies to communicate the efforts and results they make in managing themselves based on their environment, social and economy. This study examines financial factors affecting the level of sustainability reporting disclosure moderated by audit committee activity. The samples used were go-public companies listed in SRI-KEHATI index in 2019, and the ones participated in the Sustainability Award organized by NCSR in 2019 and published the 2018 sustainability reporting. The results confirm that firm size does not affect the level of sustainability reporting disclosure, while both liquidity and profitability variable affect. The frequency of audit committee meetings fails to moderate the relationship between firm size and the level of sustainability reporting disclosure, but is able to moderate both of the relationships between liquidity and profitability with the level of sustainability reporting disclosure. This result is expected to provide benefits for academics in developing researches on sustainability reporting

FURTHER EVIDENCE ON THE LINK BETWEEN FIRM’S CONTROL MECHANISMS AND FIRM FINANCIAL PERFORMANCE: SULTANATE OF OMAN

Based on the agency theory perspective and its corporate governance problem, the current study investigated how control mechanisms affect firm financial performance with special concentrate on the role of audit committee on the enhancement of firm financial performance. The empirical findings of this study based on the listed companies in the Sultanate of Oman revealed that the control mechanisms, including committee size and board independence, positively enhance financial performance represented by ROE and therefore this leads to encourage firms to focus on such mechanisms. By contrast, audit size, board size and board independence are totally not motivated to engage with financial performance due to the insignificant link with ROA. On the other hand, a negative correlation has been found between board meeting and financial performance represented by ROE. The practical evidence of the implications by the current study found that for improvement of firm financial performance; that even though if most of the GCC governments recently have focused on corporate social responsibility because largely voluntary nature of corporate social responsibility, they should focus of the control mechanisms that suggested by the current study to play a significant role for enhancing firm financial performance.

Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee

Management engages in earnings manipulation for different reasons. This article argues that low-growth firms with high free cash flow will opt for income-increasing earnings management in order to obscure the low profits derived from their investments in negative net present value (NPV) projects. On the other hand, we argue that the listed companies might be interested in being listed in the first market due to its privileges and to preserve the competitiveness, through managing their earnings upwardly, so that they can satisfy the condition of achieving a particular earnings limit. This article should advance the body of earnings management literature in the Jordanian context by examining the effect of the moderating role of an independent audit committee (IAC) in the association between surplus free cash flow (SFCF) and income-increasing discretionary accruals (DAC). Further, this is the initial empirical attempt to investigate the moderation effect of IAC between stock market segmentations (SMS) and positive DAC. The results of this current study offer original and beneficial information for the Jordanian government and other countries with a similar institutional environment because the study promotes the application of applying IAC as an efficient tool to constrain management behaviour towards manipulation of the accruals. On top of that, this research offers information concerning the prevailing situation of earnings management practices and corporate governance in Jordan, in which shareholders, local and international investors, policymakers, regulators and academic researchers are interested. Finally, panel data analyses and various statistical techniques are employed to derive conclusions.

The Role of Audit Committee of GCG in Increasing Company Value through ROA

This study determines the Good Corporate Governances (GCG) influence in increasing company value through Return on Assets (ROA). Good Corporate Governance factors used in this research are independent commissioner (IC) and audit committee (AC). Company Value factors used in this research is PBV (Price to Book Value). Sample of this research contains 23 conventional commercial banks registered on IDX (Indonesia Stock Exchange) in the period of 2014-2018. The method of data analysis uses multiple linear regression. The results show that the fastest variable to increase company value through ROA as a mediating variable is the audit committee. Independent commissioner does not influence on financial performance (ROA) and company value. Another variable that rapidly increases company value is the direct influence of intellectual capital on company value.

A Periodic Auditor Designation and the Role of Audit Committee

A Periodic Auditor Designation and the Role of Audit Committee

Impact of External Auditing Quality and Audit Committees on Accounting Conservatism and the Performance of Industrial Firms Listed at the Amman Stock Exchange

This study aims to investigate the impact of external auditing quality and audit committees on accounting conservatism and the performance of industrial firms listed at the Amman Stock Exchange. The study has relied on the industrial sector which comprised of 70 industrial firms, while the sample size comprised 54 firms. Audit quality has been addressed in terms of audit quality features (communication with world audit offices, keep client period, audit fees, accounting specialist in the customer industry), while audit committees quality has been analyzed (audit committees independence, audit committees expertise, audit committees meetings). The accruals model has been used to measure accounting conservatism. The firm`s performance has been measured through its market value. The study concluded that audit committees have no impact on accounting conservatism and firm`s performance, while audit quality features have a positive impact on accounting conservatism and firm`s performance. The study has recommended the need to activate the role of audit committees in public shareholding industrial firms since they positively have an impact on raising audit efficiency and control the regulate the firm`s internal control system.

Dewan Komisaris Independen dan Komite Audit sebagai Faktor yang Menentukan Kinerja Keuangan Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2013-2017

The purpose of this study is to discover the role of independent commissioners and audit committees to improve financial performance both simultaneously and in part. The paper objects used were all companies listed on the Indonesia Stock Exchange from 2013 to 2017, using a purposive sampling technique. Data on the company's annual financial statements and annual financial reports are obtained from the official website of the IDX. This paper was added in the study. The data analysis method used in this update is regression analysis in the data panel. This study uses the transition from Good Corporate Gorvernance, an independent board of commissioners and an audit board as an audit measure in this study. The results showed that the simultaneous independent board of commissioners had a significant effect on financial performance (ROA, ROE). The audit committee has a negative and not significant effect on financial performance (ROA, ROE).

Substitution between accrual and real earnings management: The role of independent commissioners and audit committee

The aim of the research is to investigate a substitution between accrual-based earnings management and real activities manipulation based upon the independence of the board of commissioners and the audit committee (number of audit committee members and number of audit committee meetings). This study involved a sample of manufacturing firms in the period of 2009-2014 with 664 observations. The hypothesis testing using multiple regression tests was carried out to obtain some evidence that the independence of the board of directors has no significant effect on accrual-based earnings management but a significant negative effect on real activities manipulation, to the extent of gaining stronger impacts after 2012. The number of audit committee members has a significant positive effect on accrual-based earnings management and a significant negative effect on real activities manipulation through abnormal production costs without any differences between pre and post 2012. The number of audit committee meetings has a significant effect on accrual-based earnings management but does not significantly influence real activities manipulation. In addition, substitution from accrual-based earnings management to real activities manipulation occurred due to the existence of independence of the board of commissioners that comes with a stronger impact on the real activities manipulation after 2012. Furthermore, there was a substitution from accrual-based earnings management to real activities manipulation based on the number of audit committee members without any different effects before and after 2012. JEL classification: G34, M40, M41 How to Cite: Hastuti, S., Setiawan, D., & Widagdo, A. K. (2020). Substitution between accrual and real earnings management: The role of independent commissioners and audit committee. Jurnal Keuangan dan Perbankan, 24 (2), 225-240. DOI : https://doi.org/10.26905/jkdp.v24i2.4060

Role of Audit and Governance Committee for internal Shariah audit effectiveness in Islamic banks

PurposeThe purpose of this study is to explore the role of Audit and Governance Committee (AGC) for internal Shariah auditing's effectiveness in Bahrain's Islamic banks.Design/methodology/approachThis paper employed two-stage approach, i.e. collecting and analysis of data. In this paper, the interviews and literature review on AGC and internal Shariah auditor were conducted as these respondents are considered vital to Islamic banks.FindingsThis paper posited that in building internal Shariah audit effectiveness' conceptual framework, the Islamic worldview theory may be employed as the theoretical foundation. Based on the theory, it was suggested that the Islamic bank's auditors and governance committees may enhance the internal Shariah auditors' effectiveness.Practical implicationsIn view of the roles of AGC on internal Shariah audit effectiveness, the current exploratory research contribute to enhance the limited knowledge about AGC by describing the practices of Bahraini Islamic banks in terms of composition, roles/duties and responsibilities and operations. This study also adds to the body literature of AGC effectiveness by identifying roles, duties and responsibilities of characterizing more active AGC and suggesting that these AGC could have a positive impact on internal Shariah audit effectiveness in Bahraini Islamic banks. Overall, this paper provides important insights for Board of Director's member can refer to AGC roles, duties and responsibilities to conduct a self-diagnosis of current practice.Originality/valueThis paper uniquely seized Islamic world view for Islamic banks' AGC.

The Power of Political Connections: Review on the Impacts of Audit Committee and Corporate Governance

In this paper, the study summarizes the major studies addressing on the power of political connections that have impacts on the role of audit committees and corporate governance in the companies. The question addressed by this paper is how the political connections and audit committee role may influence the corporate governance variables as reflected in audit fees and corporate governance behavior through auditor’s assessment process. This is what has been lacking in the literatures.This paper is an attempt to identify the gaps and contribute to the political connections and corporate governance literature by showing the political connection influences on audit committee especially in an economy in which the government has coercive power in the firms. In the different context, the paper provides avenue to potential research to understand firm’s agency conflicts between the majority shareholder and the management as well as political connections that providing external resources to the firms affect auditor’s decision on audit fees, audit plan and assessment process and audit opinions.

Cybersecurity Breaches and the Role of Information Technology Governance in Audit Committee Charters

ABSTRACTCybersecurity is a serious and growing risk for organizations. Firms with board of director involvement in information technology governance (ITG) may be better equipped to deal with this risk. Yet little is known about the audit committee's role in ITG. This study uses efficiency and institutional theories to investigate the influence of security breaches and board-level technology committees on disclosing ITG roles in the audit committee charter. We develop hypotheses and test them using a sample of 189 firms. Results show that firms with a technology committee and a data breach are more likely to disclose ITG roles in the audit committee charter. This suggests that firms experiencing a data breach realize their vulnerability and, by already having oversight at the board level, it is more natural for them to increase oversight by assigning ITG roles to the audit committee. We provide implications and areas for future research.

Internal Control Systems and Quality of Financial Reporting in Insurance Industry in Nigeria

In recent years many organizations have realized the importance of the role of directors, audit committee, internal auditors and external auditors in preparing and presenting quality financial reports to all stakeholders. In Nigeria, the performance and the quality of financial reports of companies in the insurance industry is dependent on the efficiency and effectiveness of the internal control system. This paper studied the impact of internal control systems and the quality of financial reporting in insurance industry in Nigeria. The research employed a survey research design. The study administered 100 questionnaires randomly to respondents, 98 questionnaires were returned and analysed. The data collected were analysed using descriptive and inferential statistics. The research hypothesis were analysed using regression analysis using Statistical Product and Service Solutions (SPSS 26). The results of the findings revealed that control environment, risk assessment, control activities, information and communication and monitoring has a statistical significant positive effect on quality of financial reporting of insurance industry in Nigeria. The study concluded that effective and efficient internal control system can affect the quality of financial reports of insurance industry in Nigeria.

The role of internal auditing to support in maintaining corporate governance preference

The technological and scientific progress that accompanied this era led to an increase in the number and size of economic organizations, and thus an increase in the responsibilities assigned to these organizations to implement their goals. Moreover, the complexity of administrative problems resulting from the practice of various activities makes internal audit an urgent need imposed by the nature of modern scientific management to preserve the financial resources provided to these organizations. The success that the organization aims for depends on the fertile environment and the dialectical relationship between the individual’s success and the organization’s success. When the organization is part of the indeterminacy, success is the mutual benefit of both the organization and the differentiation depending on the hegemony of the inferior system and the justice between the individuals. The concept of organizational nanny succeeds in developing the relationship between the founders and investing in markets and other investors because of its clear importance to the economic situation of public and private participating organizations and society in general. Financial crises led to the press, justice, and the American financial community to search for the vital role of administrative boards, audit committees, senior management, and external and internal auditors inorganizational organization processes. All this participation in one way or another in the organizational possession by emphasizing the efficiency of operations, following and obeying the rules and regulations that demonstrateconfidence in financial reports, caring for the financial position of organizations and maintaining an acceptable level of risk if they their duties properly.In light of the aforementioned, in addition to supporting the nanny in the organizations, strengthening the guidance, management and control systems will achieve or implement the goals of the organization automatically without any interference or effects to maintain the treatment control between the organizations all the relevant individuals. Therefore, the researcher will focus on the role and function of the internal audit and its effects on the organizational governance process in order to support it in response to the interests of the various parties in society, the public and private sectors.

Earnings quality and internal control in bank-dominated corporate governance

This study examines the relationship between internal governance and earnings management in Japanese listed firms. Following recent accounting fraud in large companies, Japanese internal governance systems have been widely criticized. Japan has a bank-dominated corporate governance system. This study predicts that the bank–client relationship mitigates opportunistic earnings management by reducing the degree of information asymmetry. The results show that bank-appointed audit board members mitigate managerial earnings management. Neither outside directors nor audit committees help reduce opportunistic managerial earnings management. The findings imply that a lender monitoring system can substitute the monitoring role of outside directors and audit committees.