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Audit committees, Cadbury Code and audit fees: an empirical analysis of UK companies
Abstract
Audit committees have become more important and prevalent in recent years but there is a relative paucity of empirical research concerning their value. This paper contributes to this research by reporting an analysis of the relationship between the size of the audit fee and the existence of an audit committee. The analysis builds on previous research in this area in several ways. First, it uses more recent data than previous research which may have been influenced by transitional problems. The data in this paper were collected from financial reports for the years ending in 1994 and 1995. Second, it investigates the effect on audit fees of audit committee adherence to the Cadbury Committee Report recommendations of 1992. Finally, the analysis is set within a theoretical framework developed from agency theory. The results suggest that audit committees have been through a transitional phase comprising changes to the general audit environment and a learning phase for the establishment and operation of committees. By 1995 there is no evidence that audit committees, whether adhering to the Cadbury Code or not, have any overall effect on audit fees. The only effect found was a reduction in fees due to improved internal controls in the presence of auditee complexity. There was evidence that size was the main determinant of the presence of an audit committee.
... There is a controversial discussion about board variables that may lead to JEL classification -M41, M48, Q56 Attributes of audit committees better reporting and audit quality, stakeholder reputation and, thus, firm performance (Ghafran and O'Sullivan, 2013). Effective audit committees (ACs), as subcommittees of the board of directors, represent a major corporate governance mechanism, assuming positive firm outputs (Goddard and Masters, 2000;Habbash, 2013). The main duties of ACs are to supervise business reporting, internal audits and external auditors, with a great focus on auditor independence. ...
... A voting right between one-tier and two-tier systems can be found in Denmark, Finland, France, Luxembourg, Romania, Bulgaria, Lithuania, Holland, Italy, Portugal, Croatia, the Czech Republic, Hungary and Slovenia. As the UK corporate governance code represents the first and most important code from an international perspective, with a key focus on ACs (Goddard and Masters, 2000), this concentration on UK settings in prior empirical research may be justified. Panel C shows the heterogeneity of journal publication outlets in terms of discipline and quality. ...
... Collier and Gregory (1996) differentiated between size, risk and complexity-related UK audit fees and highlighted a positive impact on size-related audit fees. However, the presence of an AC in the UK in line with the national Cadbury code did not change audit fees (Goddard and Masters, 2000). According to De Andr es Su arez et al. (2013), the mandatory existence of ACs in Spain has led to lower qualified audit opinions. ...
Purpose: In this article, we review 68 archival studies on the impact of audit committees (ACs) on firms’ consequences ((non) financial reporting, performance, and audit quality) in European firms.
Design/methodology/approach: Applying a stakeholder agency-theoretical framework, we differentiate between three categories of AC variables: (1) presence, (2) composition, and (3) resources, incentives, and diligence.
Findings: We find that AC composition, (non) financial reporting, and audit quality are dominant in our literature review. Other inputs or outputs are either too low in amount or yielded heterogeneous results, hindering clear tendencies. However, there are indications that financial expertise is positively related to financial reporting and audit quality, in line with agency theory and European regulatory assumptions.
Research limitations/implications: In the discussion of potential future research, we emphasize, among others, the need for the recognition of innovative and sustainable AC variables, inclusion of moderator and especially mediator variables, and reaction to endogeneity concerns by advanced regression models.
Practical implications: As the European Commission currently discusses extended regulations on AC duties and composition, this literature review highlights the huge impact of financial expertise on financial reporting and audit quality. In view of the increased monitoring duties of sustainability reporting, both business practices and regulatory bodies should increase the sustainability expertise of ACs.
Originality/value: This analysis makes useful contributions to prior research by focusing on attributes of AC and their impact on firms’ outputs in the European capital market, based on a differentiation between mandatory one-tier-/two-tier systems and the choice model. The findings support the promotion of European evidence-based regulations, such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.
... This would result in high audit fees. On the other hand, the presence of qualified independent members on the committee would reduce audit risk assessment and, thus, resulted in less testing Goddard & Masters, 2000) which it turn reduces audit fees. (518) of 2009 requires all companies listed in any stock exchange in the UAE to establish an audit committee. ...
... Some studies showed a positive relationship between firm's proportion of independent audit committee members and its audit fees (Abbott et al., 2003;Vafeas & Waegelein, 2007). Other studies pointed to negative relationship between the two variables Collier and Gregory, 1996;Goddard and Masters, 2000. It is therefore, hypothesized: ...
... As predicted, regression results indicated that there is a significant negative relationship betweenaudit committee independence and audit fees. While this result supports the findings of some prior literature that showed significant and inverse relationship between the two variables Goddard & Masters, 2000), it disagrees with findings from other research studies that showed a positive relationship between company's independence of audit committee and its audit fees (Abbott et al., 2003;Vafeas & Waegelein, 2007). This finding can be explained www.ccsenet.org/ibr ...
Purpose
This study aims to examine the underlying determinants that may influence external audit fees paid by Emirati nonfinancial companies listed on Dubai Financial Market (DFM).
Design/methodology/approach
Data used in this study are mainly collected from the 2011 annual reports and corporate governance reports published by the Emirati nonfinancial companies listed on DFM. Backward regression analysis is used to measure the impact of a set of company characteristics on Emirati non-financial listed firm’s audit delays.
Findings
The findings pointed to a significant and positive association between audit fees and each of corporate size and audit committee independence variables. A significant and negative relationship has been detected between external audit fees and business complexity. The findings also revealed that audit fees are not significantly associated with company’s profitability, risk, industry type, status of audit firm and audit report lag.
Originality/value
The paper helps in expanding limited existing literature about the determinants of audit fees in the Arab and Middle East countries generally and in the UAE context particularly. No prior attempt had been made to investigate the determinants of audit fees paid by Emirati firms listed on DFM because the disclosure of audit fees services provided by external auditors only became effective after April 30, 2010. The findings of the study may be generalized to other Arab countries, particularly neighboring Gulf Cooperation Council states, that have a similar socio-cultural environment.
... A group of 11 articles within this category explored whether having more independent directors on ACs affects AFs. However, the empirical evidence on the relationship between the two variables was inconclusive and did not clarify whether the direction of the link was positive (Bliss et al., 2011;Larasati et al., 2019;Naser & Hassan, 2016;Saleh & Ragab, 2023;Vafeas & Waegelein, 2007), negative (Bliss et al., 2007;Boo & Sharma, 2008), or neutral (Goddard & Masters, 2000;O'Sullivan & Diacon, 2002). The discrepancies in the empirical literature may, inter alia, be due to: a) the regulatory and industrial contexts where the relevant study was conducted (Boo & Sharma, 2008); b) internal monitoring systems of the firms (Bliss et al., 2007); c) CG quality among firms; and d) the methodological approaches employed. ...
... This corpus of literature (12 articles) includes research exploring the effect of the presence of (strong) AC on AFs (e.g., Afenya et al., 2022;Ali et al., 2018;Ariningrum & Diyanty, 2017;Duellman et al., 2015;Lee, 2008;Mitra et al., 2019;Redmayne et al., 2011;Zaman et al., 2011). Scholars have been using the presence of AC as a dummy variable to test its relationship with AFs in the early stages of development of this research (Collier & Gregory, 1996;Goddard & Masters, 2000;Redmayne et al., 2011). However, the next stage of evolution includes eight studies that try to construct AC indices/proxies/metrics as a means of measuring AC strength. ...
Over the last decades, research on the relationship between audit committees (ACs) and audit fees (AFs) has been increasing. Although numerous scholars have studied this topic, to the best of our knowledge, there is no systematic literature review (SLR) that provides a synthesized state of knowledge regarding this research area. To fill this gap this study presents a comprehensive systematic and objective review of existing research on the interaction between ACs and AFs. Using a sample of 78 articles, we find that most studies are empirical and country-specific and focus on developed markets in Europe and America. We also find that the majority of the examined papers use quantitative research methods by employing demand and supply theory either implicitly or explicitly. Further, we develop a categorization scheme, allocating the previous studies to six research themes (i.e. Composition, Diligence, Discrimination, Disclosure, Presence of (strong) AC and Compensation) and ten sub-themes. We then analyze each theme and its sub-themes providing details regarding its importance and impact on AFs and show that Diligence and Discrimination remain underexplored. Finally, we outline some potentially fruitful avenues for future research.
... By contrast Ho and Hurthinson (2010) find that in Hongkong auditors expect that the presence of audit committee lower audit risk leading to a lower audit fees charged. Nevertheless Goddard and Masters (2000) find out that presence of audit committee in the UK's companies has no relation with the amount of audit fees. Steward and Munro (2007), state that Australian external auditors rely on an effective internal control but they however do not reduce their audit testing. ...
... Audit committee size revealed negative coefficient and t-statistics values of -0.11 and -1.26 respectively, indicating that audit fee is not significantly impacted by the accounting expertise of audit committee. As documented by Goddard and Masters (2000), that presence of audit committee in the UK's companies has no relation with the amount of audit fees. ...
The research assessed the effect of quality food and service on customers' patronage of hotels and the relationship between quality food service and customers' satisfaction.
... Nevertheless, Goddard and Masters (2000) investigate that the existence of audit committee independence in the UK's companies has no relationship with the amount of audit fees. Also, to the above assertions, Steward and Munro (2007), state that Australian external auditor relies on an effective internal control but do not reduce their audit testing. ...
... This means that, the existence or non-existence of audit committee independence in the client's firm does affect the amount of audit fees. This is a contradiction to the finding of Goddard and Masters (2000) study done in UK's firms that asserted that, the existence of audit committee independence has no significant effect on the amount of audit fees charged by auditors. ...
... Stewardship Theory notes that managers hired by the owner must serve the interests of the owners (Donaldson & Davis, 1991). Thus, management can be monitored through the annual accounts, the reliability of which is enhanced by an audit report (Goddard & Masters, 2000). However, in many private limited companies in Malaysia, the owner (shareholders) and manager is the same person. ...
... Therefore, SMEs' financial statements were prepared merely to satisfy statutory requirements. Furthermore, the majority of SMEs engage in simple business transactions, and non-compliance with mandatory accounting standards is prevalent among SMEs (Goddard & Masters, 2000). ...
The objective of the study is to examine audit firm size, the provision of non-audit services (NAS) and audit tenure as factors that influence the likelihood that an auditor agrees with allowing audit exemption. This study employs a 2 × 2 × 2 within-subject experimental design. Respondent auditors were required to evaluate 8 case scenarios. A total of 79 questionnaires were returned and used for data analysis. General Linear Measurement (Repeat Measure) was used to analyse the data. The study found that an audit firm size has a significant impact on the likelihood that an auditor agrees with offering audit exemption. The larger the size of the firm, the greater is the likelihood of agreeing with allowing audit exemption. Therefore, it is suggested that small audit firms (with 5 or fewer employees) merge and focus on activities that contribute more added value such as consultancy. In so doing, auditors from these firms would be required to improve their knowledge and capacity by offering these services and not merely focusing on traditional audit work for SMEs. This is because SMEs are known to have limited resources and capacity and thus would be expected to have poor internal control. The requirement of a mandatory audit for such firms might lead auditors to compromise their independence. Thus, the government and the Malaysian Institute of Accountant (MIA) should help small audit firms to develop the necessary knowledge, skills and competencies to perform non-audit services. © Asian Academy of Management and Penerbit Universiti Sains Malaysia, 2016.
... Os primeiros estudos da relação do comitê de auditoria com a auditoria independente focaram os efeitos da presença do comitê sobre a qualidade dessa auditoria (COLLIER; GREGORY, 1996;GODDARD;MASTERS, 2000). Já os estudos mais recentes têm examinado a relação entre a qualidade da auditoria e as características (Independência, expertise, tamanho e frequência de reuniões) do comitê de auditoria. ...
... Os primeiros estudos da relação do comitê de auditoria com a auditoria independente focaram os efeitos da presença do comitê sobre a qualidade dessa auditoria (COLLIER; GREGORY, 1996;GODDARD;MASTERS, 2000). Já os estudos mais recentes têm examinado a relação entre a qualidade da auditoria e as características (Independência, expertise, tamanho e frequência de reuniões) do comitê de auditoria. ...
A identificação de quais características do comitê de auditoria estão relacionadas com a qualidade da auditoria independente, nas empresas listadas nos níveis diferenciados de governança corporativa da BM&FBovespa, é o objetivo deste estudo. A pesquisa caracteriza-se como descritiva, documental e quantitativa. Os dados foram obtidos nos relatórios públicos de 57 empresas do ano de 2013 e analisados por meio de regressão linear múltipla. Para mensurar a qualidade da auditoria adotou-se o modelo IQUA, proposto por Braunbeck (2010). Da análise dos resultados pode-se inferir que a auditoria de melhor qualidade é obtida em empresas que possuem comitês de auditoria cujos membros tenham conhecimento em contabilidade e finanças; que atuam na aprovação de serviços de não auditoria e que adotam procedimentos para receber e tratar queixas. Por outro lado, empresas com comitês responsáveis pela eficiência e eficácia dos controles internos tendem a apresentar auditoria de menor qualidade. Dentre as variáveis de controle observou-se que empresas com ativo total maior, pertencentes ao nível 1 ou ao nível 2 de governança corporativa, e que tiveram crescimento em seu ativo, estão relacionadas com auditoria de menor qualidade.
... The presence of AC can be dated to the late nineteenth century or earlier in the UK and the US, the popularization of ACs in the business world began in the 1980s and early 1990s in industrialized countries (Raghunandan et al., 2001;Lin et al., 2008). The early years of the creation of AC show that their role is not particularly exploited (Menon & Williams, 1994) with the exception of big firms (Goddard & Masters, 2000). ...
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
... Accordingly, an improved internal monitoring system could decrease the assessed level of control risk, resulting in less substantive procedures and, hence, lower audit fees. Moreover, the audit committee's primary function is to improve financial reporting quality and reduce agency problems, leading to reduced audit fees (Collier and Gregory, 1996;Goddard and Masters, 2000;Ghafran and O'Sullivan, 2017). ...
Purpose
This paper aims to empirically examine the determinants affecting audit fees in the Egyptian context concerning different organizational forms and governance mechanisms.
Design/methodology/approach
This study adopts financial and non-financial data from 62 Egyptian firms listed on the Egyptian Stock Exchange from 2015 to 2020. The proposed audit fees model is developed by adopting panel data analysis to examine the effect of auditee, auditor and engagement attributes on audit fees. The validity of the proposed equation for determining audit fees on an annual basis was established by applying the fixed effect model results for the year 2020.
Findings
The results revealed that the most significant determinants that affect audit fees are liquidity, audit committee independence, audit report lag and the status of the audit firm. Audit fees of 95.7% are determined by these factors. The validation test proved that the proposed model was more accurate and closer to the estimated data at nearly 90.2%.
Practical implications
The results of this paper would send early signals to audit firms, stakeholders and regulators regarding the determinants of audit fees, and provide an objective standard for fee-setting to be used by stock market regulators and professional bodies, in determining a minimum amount of audit fees that ensure a reasonable level of audit quality.
Originality/value
To the best of the authors’ knowledge, for the first time, this paper empirically examines the determinants of audit fees in an emerging market like Egypt and presents evidence for a period of six years.
... We follow the recent literature that suggests considering audit-related variables when investigating audit-related research (Goddard & Masters, 2000;Abdelfattah et al., 2021;Behrend et al., 2020) So, we control for the non-audit fees. ...
Purpose
This paper aims to investigate the relationship between key audit matters (KAMs) and audit costs and whether board size and independence affect this relationship. Furthermore, this paper examines the moderating effect of corporate governance on the relationship between KAMs and audit costs.
Design/methodology/approach
The authors hypothesise that disclosing more KAMs in the audit report is positively associated with audit costs because of the greater effort. The agency theory suggests that firms with good governance will mitigate the agency conflict of interest and improve financial reporting quality. Thus, good governance might moderate the relationship between reported KAMs and audit costs. The authors use a quantitative approach. The authors are using a sample of the UK FTSE all-share non-financial firms from 2014 to 2018 for the UK Financial Times Stock Exchange all-share non-financial firms.
Findings
The authors provide evidence of a significant positive relationship between KAMs and audit costs. The relationship is relatively higher when considering the independent directors' percentage as a moderating factor. These results came consistent with the agency theory literature. However, the authors found no empirical evidence to support a moderating effect of board size on the relationship between KAMs and audit cost.
Practical implications
The finding benefits the regulatory setters to better understand the consequences of the new auditing standards. This paper has theoretical and practical implications for regulators, standard setters, professional bodies, shareholders and academics.
Originality/value
This paper contributes to the literature assessing the regulatory changes related to audit reform and adds to the debate on the impact on audit costs. This paper underlines governance factors as a moderating role in this relationship between KAMs and audit costs.
... In light of the scandals, the investment community launched measures that focused on AC's role in improving the market's transparency. The regulatory bodies in the United States recommended listed companies to formulate ACs in 1972; however, this was made a mandatory requirement in 1978 (Goddard & Masters, 2000). Due to several accounting scandals, the lawmakers were forced to rethink about the working of the ACs, composition and independence from executive teams was given particular reconsiderations. ...
Internal audit function (IAF) is a critical component of corporate governance mechanisms, and researchers have argued that internal audit effectiveness (IAE) is of utmost importance to serve the purpose. The study attempts to contribute to a better understanding on the role of audit committee (AC) characteristics (i.e. AC size, AC meeting frequency, AC expertise and AC independence) as a driver of IAE in public limited companies listed in Pakistan stock exchange (PSX). Two sets of questionnaires were distributed in 400 listed companies, whereas 162 completed sets in all respects with a response rate of 41% were received back. The collected data was analyzed using PLS-SEM. The results of the study indicated a positive influence of AC size and AC meeting frequency on the IAE of the listed companies. At the same time, the responses failed to establish any significant relationship between AC independence and AC expertise on the IAE.
... Professional and academic literature accentuates the importance of audit committees as a relevant component of modern corporate governance structures, particularly within public sector organizations (Goddard & Masters, 2000;Psaros & Seamer, 2004;Van der Nest, 2005;Apollo, 2008). It notes the significant structural incentives associated with audit committees, centered on their potential to minimize agency costs (Jensen & Meckling, 1976;Fama & Jensen, 1983). ...
The study aimed at establishing the impact of audit committee characteristics on internal audit function effectiveness in Zimbabwe local authorities. The study used audit committee characteristics as represented by its dimensions of competence, conduct of meetings and independence as the independent variable and internal audit function effectiveness, represented by its dimensions of independence, competence and objectivity as the dependent variable. The association between the independent and dependent variables was assessed considering the effects of the regulatory environment as the mediating variable there to. Survey data was obtained from audit committee chairpersons and chief audit executives in Zimbabwean local authorities using semi-structured questionnaires. Correlation and regression analysis were used to test whether there is a relationship between audit committee characteristics and internal audit function effectiveness. The study established that audit committee membership in Zimbabwe local authorities is not subject to qualifications, experience or expertise, as such, majority of audit committees in Zimbabwe local authorities lack the required competencies to effectively execute their mandates. Correlation and regression analysis results further established that the characteristics of independence and conduct of meetings are capable of predicting the effectiveness of internal audit functions within Zimbabwe local authorities. The study recommends the inclusion of "resource persons", in form of independent professionals with financial expertise and experience within audit committees of local authorities, most preferably from the civil service, so as to fill the competency gap. The study also recommends the establishment of clearer guidelines on the operation of audit committees within Zimbabwe local authorities to help in ensuring the committees' independence and objectiveness is guaranteed thereby strengthening their oversight role.
... a. To test the first hypothesis of the study, which states that "There is a statistically significant relationship between financial auditing and increasing profitability of Islamic banks in Palestine"the calculation averages, standard deviations, percentages and the level of the role of each paragraph of the financial audit were calculated, the following table shows that: (8) shows that the field of financial auditing has a very high role in increasing the profitability of Islamic banks in Palestine, thus accepting the first hypothesis of the study. ...
... Ali (1994) asserts that even though the boards are responsible for overall stewardship of their organizations' affair including a true and fair presentation of financial information, the existence of audit committee could assist board in the financial affair of the companies. In United Kingdom, Goddard and Masters (2000) have provided an empirical analysis about the effect of audit committee formation that adheres with Cadbury Code towards the determination of audit fee. In Malaysia, Norziaton et al. (2017), study on the audit committee in the politically connected companies with relation to audit fee determination. ...
Internal governance structure plays a role in improving quality of financial reporting, thus determining external audit fee is very important. The objective of this study is to examine the association between external audit fees and internal governance structure (boards and audit committee characteristics). The methodology used based on the sample of 115 companies listed on the Bursa Malaysia Main Market in 2015. It is hypothesized that external audit fees will be positively associated with board of director and audit committee’s independence, expertise and meeting frequency. As a result, the findings reveal that no variable found to be significant to external audit fee except for audit committee expertise (audit committees who being accounting professional members). Audit committee expertise indicate negative and significant relationship with external audit fee which implies that the existence more audit committee member who possess accounting professional certification tend to provide complementary effect towards audit effort in the process of negotiating audit fee, thus lower audit fee will be paid. The study suggests there are opportunities to include other variables such as director’s remuneration, ownership structure or /and audit tenure for future research. Keywords: Corporate Governance, Boards of Directors, Audit Committees, External Audit Fee, Malaysia
... Goddard, A. R., & Masters, C. (2000). Audit committees, Cadbury Code and audit fees: an empirical analysis of UK companies. ...
A study on selected banks in Nigeria to determine the extent of auditing as a panacea tool for organizational success
... ΟιAbbott et al., (2003), βρήκαν ότι μια καλύτερη ποιότητα Ελεγκτικής Επιτροπής συσχετίζεται θετικά με το ποσό των αμοιβών ελέγχου που καταβάλλονται. Ενώ,Collier, et al., (1996), καιGoddard and Masters, (2000), δε βρήκαν καμία σημαντική θετική σχέση μεταξύ της Ελεγκτικής Επιτροπής και των αμοιβών ελέγχου που καταβάλλονται.Με βάση την βιβλιογραφία σχετικά με την ποιότητα των συστημάτων ERM και των αμοιβών ελέγχου, στην παρούσα έρευνα υποθέτουμε ότι υπάρχει αρνητική σχέση μεταξύ ποιότητας συστημάτων ERM και αμοιβών ελέγχου, επειδή τα ERM φαίνεται να μειώνουν τον κίνδυνο βελτιώνοντας το σύστημα εσωτερικού ελέγχου βοηθώντας έτσι τους εξωτερικούς ελεγκτές να εργαστούν πιο αποτελεσματικά. Έτσι λοιπόν έχουμε την πρώτη υπόθεση της έρευνας H 1 : H 1 : Υπάρχει αρνητική σχέση μεταξύ των αμοιβών ελέγχου και της ποιότητας Οι Higgs and Skantz, (2006), βρήκαν μια θετική σχέση μεταξύ μεταβλητότητας των κερδών και του ύψους των αμοιβών ελέγχου που καταβάλλονται. ...
Από τις αρχές του 2000, ένας αυξανόμενος αριθμός επιχειρήσεων εξετάζει είτε την εφαρμογή ενός συστήματος Διαχείρισης Επιχειρηματικού Κινδύνου (Enterprise Risk Management – ERM), είτε έχει ήδη θέσει κάποιο σε εφαρμογή. Από το 2006, σύμφωνα με μελέτη της Standard & Poor (S & P) και όσα αναφέρουν οι Hoyt & Liebenberg, (2011), έχει ήδη αναπτυχθεί μια εκτίμηση-μέτρηση προκειμένου για ERM σε επιχειρήσεις και άρχισε να εντάσσεται το ERM στη διαδικασία αξιολόγησης και χαρακτηρισμού τους. Η παραδοσιακή θεωρία της Διαχείρισης Κινδύνου, τείνει να διαχωρίζει την έννοια της διαχείριση κινδύνου σε ξεχωριστές μεμονωμένες κατηγορίες. Το ERM επιχειρεί να θέσει αυτή τη διαχείριση σε μια ολιστική, ολοκληρωμένη, εταιρική βάση.
Οι Beasley et al., (2008), Cumming and Hirtle, (2001), Hoyt and Liebenberg, (2011), Lam, J., (2001), Meulbroek, (2002), Miccolis and Shah, (2000) ισχυρίζονται ότι, το ERM μπορεί να αυξήσει την συνειδητοποίηση του κινδύνου βελτιώνοντας τη λήψη στρατηγικών επιχειρησιακών αποφάσεων, εξομαλύνοντας φαινόμενα όπως η μείωση των κερδών και η πτώση των τιμών των μετοχών, συνεισφέροντας έτσι αποτελεσματικά στην αύξηση της αποδοτικότητας του κεφαλαίου και στη μείωση του κόστους του, δημιουργώντας ένα πιο αποτελεσματικό σύστημα διαχείρισης του κινδύνου. Οι Beasley et al., (2005), Hoyt and Liebenberg, (2003), Kaplan and Mikes, (2014), Pagach and Warr, (2010), αναφέρουν το σύστημα ERM, ως ένα σύστημα με γενικότερα αμφίβολα αποτελέσματα από την εφαρμογή του. Οι Hoyt and Liebenberg, (2011), Hoyt and Liebenberg, (2003), Lam, J., (2014), Nocco and Stulz, (2006), Beasley et al., (2008), το αναφέρουν ως ένα θεμελιώδες σύστημα διαχείρισης κινδύνου μεταξύ ανταγωνιστικών επιχειρήσεων.
Κάποιοι άλλοι υποστηρίζουν ότι το ERM δεν είναι αποτελεσματικό και για αυτό δεν πρέπει να εφαρμόζεται. Ο Power, (2009), υποστηρίζει ότι το ERM μειώνει την ποιότητα του κινδύνου διαχείρισης, και κατά κύριο λόγο στα ουσιαστικά του στοιχεία, όπως η διάθεση για ανάληψη του κινδύνου. Καταλήγει στο συμπέρασμα ότι, τα συστήματα ERM μπορεί στην καλύτερη περίπτωση να παρέχουν περιορισμένη ασφάλεια και στη χειρότερη περίπτωση, η ασφάλεια να είναι μηδαμινή. Οι Lin et al., (2012), και McShane et al., (2011), θεωρούν ότι, τα συστήματα ERM δεν αυξάνουν την εταιρική αξία παραπάνω από το βαθμό της παραδοσιακής διαχείρισης κινδύνου. Επιπλέον, οι Fraser et al., (2008), αναφέρουν ότι, οι επενδυτές δεν φαίνεται να εκτιμούν τα συστήματα ERM, ως στοιχείο που δίνει προστιθέμενη αξία στην επιχείρηση που το εφαρμόζει. Παρά το αυξημένο ερευνητικό ενδιαφέρον για τα ERM από ακαδημαϊκούς και επαγγελματίες, παρουσιάζεται έλλειψη εμπειρικών στοιχείων σχετικά με την επίδραση του επιπέδου της ποιότητας των συστημάτων ERM σε διάφορες πτυχές της κάθε εταιρίας που το εφαρμόζει. Οι Hoyt and Liebenberg, (2011), προχώρησαν σε έρευνα με ένα μεγάλο δείγμα, με μια πιο εξελιγμένη μορφή συστημάτων ERM, ικανή να μετρήσει το επίπεδο ποιότητας του, προκειμένου να εντοπίσει έτσι συγκεκριμένους τρόπους με τους οποίους το ERM συμβάλει στην εταιρική αξία. Επιπλέον, οι Baxter et al., (2013), διερεύνησαν τα ζητήματα που σχετίζονται με την ποιότητα των συστημάτων ERM σε άλλες κλάδους εκτός από τον ασφαλιστικό. Τέλος, οι Kaplan and Mikes, (2014), ενθαρρύνουν μελλοντικές έρευνες προκειμένου να καθοριστούν και επιπρόσθετες μεταβλητές που βελτιώνουν τα συστήματα ERM .
... However, executive managers (agents) interests may not coincide with the interest of the principals. Therefore, shareholders need to monitor the activities of the agents to ensure that they live upto the provisions of their contracts (Goddard et al 2000). ...
Over the last decade or so, the focus on information disclosed in financial statements, corporate governance andthe role of the audit committee to monitor and oversee financial reporting has increased. This is largelyattributed to the global business scandals caused mainly by fraudulent financial reporting. In response, the roleof audit committee was questioned in an attempt to maintain user’s confidence in corporate financial reportingand improve the effectiveness of an adequate internal control Not least because, an audit committee is anindependent body created by the board to oversee financial reporting and disclosures, monitor effectiveness ofinternal control, and external and internal audit functions.
At present, there is no conclusive evidence on the role and effectiveness of the audit committee. At one end ofthe spectrum there are audit committees that see their role as the validation of financial statements, while at theother end, are those who have broadened their role to include oversight of performance and critical high levelbusiness and operating tasks.
The purpose of this research is twofold: First: to investigate the state of the art of audit committees in Bahrainregarding composition, meetings, independence and role of audit committees. Second, since “Blue Ribbon”recommendations were issued in 1999, effectiveness of audit committee has become a cornerstone for corporategovernance. Therefore, an objective will be to assess effectiveness of audit committee.
... Ils montrent l'importance du comité d'audit comme organe préventif contre la réduction des honoraires des auditeurs externes. A la différence des résultats obtenus par les chercheurs confirmant la relation positive entre la présence du comité d'audit et la rémunération des auditeurs externes, Goddard et Masters (2000), ne confirment pas cette relation. Ils trouvent une relation positive entre le comité d'audit et les auditeurs externes jusqu'au 1994, alors qu'en 1995 cette relation a disparu. ...
Our paper will try emphasizing the effect of the presence of audit committees on earnings management within the Moroccan context, and most specifically in the companies listed in the Casablanca stock exchange.
We have adopted previous research embedded in the Dechow, Sloan and Sweeny (1995) model of earnings management that requires a maximum of 6 companies by sector, a condition that limited our sample to 27 companies dispatched only on 4 industry sectors.
Given that the companies manipulate the accruals to show the increasing results or to maintain the stock price, the role of the audit committee is to ensure that this manipulation is to be reduced in order to provide investors with accurate information. In the Moroccan context, this reduction started appearing in 2014. The years 2011, 2012 and 2013 were marked by a preparation of implementation tools of these committees mainly the integration of independent administrators within the administrative boards.
However, due to lack of data, this study might be limited given the fact that the year 2016, which represented a year where the listed companies should have created an audit committee, was not covered by our study.
... Así, por ejemplo, la New York Stock Exchange exige que los comités de auditoría estén compuestos en su totalidad por consejeros independientes de la dirección desde 1978. En esta misma línea, la Treadway Commission (1987) manifestaba que la composición del comité de auditoría puede consigue evitar las presiones de la dirección sobre el auditor(Cohen et al., 2002; Gibbins et al., 2004;Gul, 1989), ni su control sobre los aspectos que pueden condicionar la calidad de la auditoría(Goddard y Masters, 2000;Kunitake, 1981 Kunitake, y 1983. ...
... For years, the U.K. followed the recommendatory approach wherein the Cadbury Code's intent was to provide guidance for improving audit practices in the country; but the compliance with it was left to the will of the board of directors, with no legislation backing the Code (Hemraj, 2002). Companies could choose whether they would have an audit committee and whether it would meet the recommendations of the Cadbury Code (Goddard and Masters, 2000). At the beginning of the 21st century, audit committees were still not mandatory in U.K. companies. ...
This research discusses the key events that led to the establishment of the current regulations pertaining to the functioning of audit committees in six major capital markets of the world, namely, the U.S., U.K. Australia, India, South Africa, and Argentina, and also presents the findings based on a comparison of these regulations. Specifically, the authors review the changes that happened either proactively or sometimes as a reaction to certain events in each of these securities markets, leading to the current audit committee regulations. Also, the relevant local laws and requirements of the regulatory bodies along with the listing rules of the stock exchanges in the above six nations are examined to study how the requirements are both similar as well as different across the six continents. Given the increase in the number of multinational corporations selling shares in different capital markets where such entities have to conform to the regulations of each such market, a study of the audit committee regulations is expected to give some insight into how much rigor the different capital markets of the world have with respect to their expectations of the composition of the audit committee, what the committee’s role should be, how it should conduct its business, and to whom it should report. The study shows that each of these six nations has had its share of corporate scandals and/or abuses of power by senior business executives that first caused losses for investors, and eventually led to the current regulations. In some of these markets, audit committee regulations advanced from being recommendatory and “principles-based” to being mandatory mainly because of the pressure from external stakeholders. The newer regulations in each securities market generally, though not always, represented improvement over the previous versions. The study also shows that today the audit committees of companies listed on the different stock exchanges being examined in this study are subject to similar or sometimes identical requirements in some respects. At the same time, there are other requirements where the authors see minor as well as noticeable differences. All in all, NYSE emerges as the stock exchange with the most rigorous expectations from the audit committee on various matters and especially with respect to the monitoring of the independent auditor. While the audit committee regulations in the developed world of the U.S., U.K., and Australia have set good examples of governance practices before the rest of the world, the securities markets in the emerging economies of India, South Africa, and Argentina are not far behind. There are areas where the regulations in India and South Africa actually demand more from their audit committees compared to those in the developed markets.
... a. 0 cells (.0%) hav e expected frequencies less than 5. The minimum expected cell freque ncy is30.5. b. ...
This thesis aims to study the effect of internal corporate governance mechanisms (Board of directors, audit committee, and internal audit) and Sarbanes–Oxley act on the external auditor fees in the Egyptian business environment. The thesis is divided into two parts; the theoretical part consists of four chapters to review the literature in this field. Then, the practical part to test the hypothesis using a questionnaire that was distributed to the research sample.
Results indicate that companies that have a higher proportion of independent members on their board, and they have a high financial expertise, and they meet in high frequency, they are more demand for a high quality audit, which requires the auditor to make more effort, leading to increase in external auditor fees. Also, the results indicate that lower external audit fees are associated with independent and active audit committee that because its role in increasing the effective control and increasing fraud opportunities, earnings management, and the risks. Also, The internal audit function leads to increase oversight and effective governance, which reduce the audit tests and decrease a large part of the audit program, also decreases the time and effort needed to perform the work, then reduce audit fees. Moreover, applying Sarbanes–Oxley Act leads to increase the external auditor effort, work, and fees.
... Os nossos resultados mostraram que a concentração de propriedade, a independência do conselho de administração, a presença de um comité de auditoria e o rácio de liquidez são fatores que influenciam positivamente a opinião de auditoria, promovendo uma informação financeira mais fiável. No Para alguns autores, o principal meio de monitorização é conseguido através das contas anuais, cuja confiabilidade é reforçada pelo relatório de auditoria (GODDARD; MASTERS, 2000). Além disso, o governo das sociedades também é visto como um mecanismo que visa alinhar os diversos interesses entre acionistas e gestores. ...
RESUMO Este estudo analisou o efeito da estrutura de propriedade das empresas nos pareceres de auditoria, assim como o efeito que determinadas características relacionadas com o governo das sociedades têm nos pareceres de auditoria. Para cumprir o objetivo, recorremos ao modelo de regressão logística, considerando uma amostra de empresas portuguesas não financeiras cotadas na Euronext Lisbon, durante o período compreendido entre 2008 e 2011. Os nossos resultados mostraram que a concentração de propriedade, a independência do conselho de administração, a presença de um comité de auditoria e o rácio de liquidez são fatores que influenciam positivamente a opinião de auditoria, promovendo uma informação financeira mais fiável. No 1 Artigo recebido em 30.03.2015. Revisado por pares em 13.08.2015. Reformulado em 24.09.2015. Recomendado para publicação em 10.11.2015 por Carlos Eduardo Facin Lavarda. Publicado em 27.11.2015. Organização responsável pelo periódico: FURB.
ABSTRACT
This study investigates the impact of board competency and ownership
structure on firm performance, using data from 80 (800 firms-year) non-financial
firms listed in Muscat Securities Market of Oman between 2003 and 2012. Oman
business environment is surrounded by issues like incompetent board members, poor
internal controls, ownership concentration and several incidences of fraud that lead
to corporate failures. Furthermore, since the issuance of corporate governance code
in 2002, there has not been any rigorous study that evaluates the impact of code
adoption on firm perormance. In this study, board competency has been assessed
using two approaches, a composite-index approach and an individual variable
approach where the impact of each of the components of the index on firm
performance is examined. This study uses seven performance metrics covering firm
profitability, firm short-term liquidity, firm market value and firm risk of failure.
Descriptive statistics reveal that since the issuance of corporate governance code in
2003, the board competency has been enhanced. The multivariate regression results
of board competency index (BCI) confirm the hypothesis that there is a positive and
significant relationship between BCI and firm performance. Findings of the
individual variable model reveal several novel results; firms with board comprises of
8 to 10 directors is more profitable, they enjoy better short-term liquidity and are in a
secure zone from corporate failure. Findings also indicate a negative and significant
impact of directors' absence and having more than 4 multiple directorships
concurrently on firm performance. This study also discovers that firms having 33%
or more independent members perform better. With regard to ownership structure,
the study shows that institutional investors have a positive impact on firm
profitability and firm‘s short term liquidity, whereas firms with government
ownership display more resilience to corporate failure. Surprisingly, firms that
receive more soft government funds are found to be less profitable and more
susceptible to corporate failure. The outcomes of various tests for robustness and
sensitivity propose that empirical results are vigorous. This study has important
implications to corporations in strengthening their corporate govenance and attaining
cost reduction by eliminating unnecessary corporate governance mechanisms. Policy
makers and regulators can use these findings to issue regulations that may have a
positive impact on firm‘s performance. Results gained also provide more avenues for
further research.
This Study has two main objectives: The first is making a critical revision of Jordanian laws and regulations concerning audit committees in order to explore to which extent they are applied in fifty industrial listed companies. The second one is to examine the effects of audit committees in reducing earnings management in these companies during (2001-2006). The study concluded that industrial public companies fulfill the requirements of audit committees, also found that audit committee size, financial experience of audit committee members and the number of meetings do not affect in reducing earnings management, while the study found that the independency of audit committee members has an effect in reducing earnings management, it is also found that the percentage of shares that audit committee members own in the company has significantly effects on increasing earnings management. The study recommends that the Jordanian laws and regulations concerning audit committees must be reevaluated and include deterministic terms and conditions regarding their role in reducing earnings managements, minimizing the ownership of audit committee members of the company shares and supporting independency of audit committee through increasing the number of non executives members.
This Study has two main objectives: The first is making a critical
revision of Jordanian laws and regulations concerning audit committees
in order to explore to which extent they are applied in fifty industrial
listed companies. The second one is to examine the effects of audit
committees in reducing earnings management in these companies during
(2001-2006). The study concluded that industrial public companies fulfill
the requirements of audit committees, also found that audit committee
size, financial experience of audit committee members and the number of
meetings do not affect in reducing earnings management, while the study
found that the independency of audit committee members has an effect
in reducing earnings management, it is also found that the percentage of
shares that audit committee members own in the company has
significantly effects on increasing earnings management. The study
recommends that the Jordanian laws and regulations concerning audit
committees must be reevaluated and include deterministic terms and
conditions regarding their role in reducing earnings managements,
minimizing the ownership of audit committee members of the company
shares and supporting independency of audit committee through
increasing the number of non executives members
This Study has two main objectives: The first is making a critical revision of Jordanian laws and regulations concerning audit committees in order to explore to which extent they are applied in fifty industrial listed companies. The second one is to examine the effects of audit committees in reducing earnings management in these companies during (2001-2006). The study concluded that industrial public companies fulfill the requirements of audit committees, also found that audit committee size, financial experience of audit committee members and the number of meetings do not affect in reducing earnings management, while the study found that the independency of audit committee members has an effect in reducing earnings management, it is also found that the percentage of shares that audit committee members own in the company has significantly effects on increasing earnings management. The study recommends that the Jordanian laws and regulations concerning audit committees must be reevaluated and include deterministic terms and conditions regarding their role in reducing earnings managements, minimizing the ownership of audit committee members of the company shares and supporting independency of audit committee through increasing the number of non executives members.
هدفت هذه الدراسة إلى تحديد مدى تطبيق الشركات المساهمة العامة الأردنية لتعليمات الحاكمية المؤسسية الخاصة بلجان التدقيق والواردة بنصوص القوانين والتشريعات الأردنية، وتحديد مدى قدرة لجان التدقيق في الحد من قيام الشركات المساهمة العامة الأردنية في إدارة أرباحها. ولتحقيق هذه الأهداف قام الباحثون بدراسة وتحليل القوانين والتشريعات الأردنية ذات العلاقة لتحديد أهم خصائص لجان التدقيق الواردة فيها ودراسة أثرها على إدارة الأرباح في (50) شركة صناعية مساهمة عامة -مدرجة ببورصة عمان للأوراق المالية- خلال الستة سنوات السابقة للأزمة المالية العالمية (2001- 2006). ولتحقيق ذلك استخدم الباحثون جملة من الأساليب الإحصائية الملائمة، وتوصلت الدراسة إلى أن الشركات المساهمة العامة الصناعية تلتزم بتطبيق تعليمات الحاكمية المؤسسية الخاصة بخصائص لجان التدقيق كما وردت بالتشريعات الأردنية. وأظهرت نتائج التحليل الإحصائي لخصائص لجان التدقيق بأن كلا من: حجم لجنة التدقيق، والخبرة المالية لأعضائها، وعدد مرات اجتماعهم لا تؤثر في الحد من إدارة الأرباح؛ إلا أن استقلالية أعضاء لجنة التدقيق تؤثر في الحد من إدارة الأرباح. أما نسبة ملكية أعضاء لجنة التدقيق لأسهم في الشركة كان له أثراً مهما في زيادة إدارة الأرباح. وفي ضوء النتائج السابقة أوصى الباحثون بضرورة إعادة النظر في التشريعات والقوانين الأردنية الخاصة بخصائص لجان التدقيق وتضمينها مجموعة من الشروط والخصائص الإضافية لزيادة فاعليتها في الحد من إدارة الأرباح، وتقليص ملكية أعضاء لجنة التدقيق في أسهم الشركة، مع ضرورة دعم استقلال لجنة التدقيق من خلال زيادة الأعضاء غير التنفيذيين فيها.
This paper investigates the association between audit committee (size, independence, meeting, financial expertise) and financial performance (return on investment and return on equity) of listed companies on the Nigerian Exchange Group for the years 2012 to 2021. The study is founded on the agency theory and the data were extracted from the annual reports of 116 listed firms. The data were analysed using panel data techniques. Furthermore, the study used firm size and financial leverage as control variables. Based on the results, the fixed-effect model was used, which show that audit committee has a significant effect on financial performance of the firms. The results have both policy and practical use to regulators, firm owners, and board of directors.
Purpose
The purpose of this study is to examine the association between audit committee expertise and asymmetric information in the US equity market.
Design/methodology/approach
The authors use measures of information asymmetry for 705 US firms (5,260 firm-year observations) over the period from 2007 to 2018, and use the theory of expertise (Ericsson and Smith, 1991) to examine the association between audit committee financial expertise and information asymmetry. The authors use multiple econometric approaches such as firm fixed-effect regression and two-stage ordinary least squares regression to control for possible endogeneity and reverse causality and find that the results remain the same.
Findings
The authors find that the existence of an audit committee with financial expertise is negatively and significantly associated with information asymmetry. The authors further provide empirical evidence through which audit committee financial expertise affects the firm’s informational environment. Additional analysis supports the argument that the audit committee’s financial expertise enhances the firm’s informational environment by increasing (decreasing) analyst following (dispersion).
Research limitations/implications
One limitation to consider, like most studies on audit committees, is that the authors do not examine the actual role performed by the audit committee. The authors focus on the characteristics stipulated by the Sarbanes–Oxley Act 2002 and stock exchange rules regarding the financial expertise of audit committee members only.
Practical implications
This study is useful to policy makers, standard setters, investors, activists, managers, lenders and various stakeholders who rely on the financial statements of firms with an expert audit committee on board. The outcome of this study promotes recruiting audit committees with financial expertise due to the assumed benefits of this trait to the US firm.
Social implications
The results of this study are not event-dependent and therefore have persistent effects, which is important to the evaluation of the usefulness of a regulation. This study promotes recruiting audit committees with financial expertise on boards because of the assumed benefits to the firm and investors.
Originality/value
This study is the first to document that financial expertise of audit committee characteristics is not only negatively related to the magnitude of information asymmetry but also driven by the financial expertise of audit committee members rather than chairs.
Purpose
The study explores extant knowledge on the nature of the relationship between internal and external corporate governance mechanisms, particularly board characteristics and audit quality, respectively, while also investigating how the relationship varies across geographies.
Design/methodology/approach
The extant knowledge is synthesized using a meta-analysis, which is conducted using a sample of 56 empirical studies from publications of varying grades. The studies span over 25 years (1996–2021) and cover 147 empirical samples (343,787 firm-year observations) across more than 20 countries. The dependent variable is audit fees, and the independent variable captures 12 different measures of board characteristics.
Findings
Overall, the results reveal a positive association between board characteristics and audit fees, indicating complementarity between governance mechanisms. Effect size analysis shows board characteristics, like size and independence, are positively associated with audit fees. However, heterogeneity is noted for some characteristics, and further analysis by geography (developed vs emerging countries) explains the heterogeneity.
Practical implications
This study helps multiple stakeholders like firms, shareholders, boards, regulators and policymakers in designing and strengthening governance frameworks.
Social implications
Both governance and auditing literature benefit from identifying specific board characteristics that drive audit quality consistently across different institutional settings and samples. Heterogeneity analysis helps improve the understanding of contradictions documented in prior literature.
Originality/value
This meta-analysis is the first to explore the interplay between internal and external corporate governance mechanisms, with a focus on board characteristics and audit quality. The study provides valuable insights on how different governance mechanisms influence each other while highlighting, for the first time, how the interaction between governance mechanisms varies by a country's level of development.
Bu çalışma BIST (Borsa İstanbul) 100’de işlem gören işletmeler bazında bağımsız denetim ücretlerini etkileyen faktörleri ortaya koymayı amaçlamaktadır. 2013-2018 dönemine ait finansal verileri incelenen 98 şirket ve bu şirketleri denetleyen denetim firmalarının şeffaflık raporları kullanılarak bağımsız denetim ücretlerini etkileyebilecek faktörler, denetlenen firmaya ve denetçi firmaya ait özellikler ile türev araç kullanımı çerçevesinde incelenmiştir. Denetlenen işletme özellikleri değerlendirildiğinde firma büyüklüğü ile denetim ücretleri arasında anlamlı pozitif ilişki raporlanmıştır. Denetim firması özellikleri kapsamında ise denetçi görüşü ile denetim firması ile çalışılan sürenin denetim ücretleri üzerinde anlamlı etkisi ön plana çıkmaktadır. Bu sonuçlara ek olarak, türev araç tutarı ve kapsamlı gelir ile denetim gelirleri arasında ise anlamlı pozitif ilişki raporlanmıştır.
يهدف هذا البحث إلى استكشاف مدى التباين أو التقارب بين دليل لجان التدقيق الصادر عن مجلس الإبلاغ المالي (FRC) في المملكة المتحدة، ودليل الحوكمة المؤسسية للمصارف الصادر عن البنك المركزي العراقي، فيما يخص لجان التدقيق وذلك من خلال دراسة مقارنة للدليلين، بغرض الاستفادة من تجربة المملكة المتحدة في مجال لجان التدقيق والأدلة الخاصة بها، مع التركيز على دور هذه اللجان في موضوع التدقيق الخارجي، كما يهدف البحث إلى التعرف على واقع لجان التدقيق في المصارف العراقية الخاصة في إقليم كوردستان/العراق فيما يتعلق بمدى استيفائها للمواصفات، والمهام والصلاحيات لأداء دورها في التدقيق الخارجي، وأخيراً استكشاف المجالات التي يمكن من خلالها تفعيل دور هذه اللجان في التدقيق المشترك الذي يتم تطبيقه في هذه المصارف، ومن خلال الدراسة المقارنة تبين وجود تباين بين دليل (FRC) ودليل البنك المركزي العراقي، كما تبين أن المصارف عينة البحث بحاجة إلى بذل المزيد من الجهود للارتقاء بواقع لجان التدقيق فيها، وأن هناك العديد من المجالات التي يمكن تفعيل دور لجان التدقيق في مجال التدقيق المشترك .
This paper comprehensively reviews the current body of international accounting literature regarding advisory/monitoring committees and corporate outcomes. Specifically, it synthesizes, appraises, and extends current knowledge on the (a) theoretical (i.e., economic, accounting/corporate governance, sociological and socio-psychological) perspectives and (b) empirical evidence of the observable and less visible attributes at both the individual and committee levels and their link with a wide range (financial/non-financial) of corporate outcomes. Using the systematic literature review method, 304 articles from 59 journals in the fields of accounting and finance that were published between January 1992 and December 2018 are reviewed. The main findings are as follows. First and theoretically, agency theory is the most dominant applied theory/studies with no application of theory at all (descriptive), while the application of integrated theoretical frameworks is lacking in the reviewed articles. Secondly, the existing empirical evidence focusses excessively on (a) monitoring instead of advisory committees and (b) observable rather than less visible committee attributes. Thirdly, scarcity of cross-country studies along with methodological limitations relating to measurement inconsistencies, insufficiency of variables, and dominance of quantitative studies, among others, are identified. Finally, promising future research avenues are outlined.
The results from the empirical evidence on the effect of external audit fees determinants on audit fees are inconsistent and some are contradictory; ranging from positive, to negative, to statistical insignificant effect. Besides, few research works have been conducted on Nigerian deposit money banks in particular. This study thereby determined the effect of external audit fees determinants on audit fees of Nigerian deposit money banks. Specifically, the study ascertained the significant effect of client complexity and board size on audit fees of Nigerian deposit money banks. Ex-post facto research design will be adopted for the study. A sample of 15 banks will be selected from a population of 15 deposit banks quoted on the Nigeria Stock Exchange. Data for the study was obtained from annual published financial of the banks covering a period of ten years from 2009-2018. Multiple regression analysis was used to test the formulated hypotheses. Findings revealed that client complexity, and board size has positive influence on audit fees of Nigerian deposit money banks but the influence on board size is statistically significant while client complexity was insignificant. The researchers recommended that regulators of the auditing practice should adopt measures to regulate and monitor the audit pricing process in order to strike a balance and reduce over-charging and under-charging to enhance the independence of the auditor.
This paper investigates whether foreign ownership affects audit fees by analyzing shareholdings of listed firms from Western European countries. The results show that foreign ownership is an important factor that drives the demand for audit services. However, the willingness to pay higher audit fees is mainly driven by the quality of governance and investor protection of the foreign investor's home country. This is consistent with the notion that foreign investors encourage the firms that they invest in to implement the same corporate governance practices in terms of auditing that they themselves are subject to in their home country. Finally, we document that the influence of the foreign investor on audit fees is increasing in the percentage of ownership held.
This paper comprehensively reviews the current body of international accounting literature regarding advisory/monitoring committees and corporate outcomes. Specifically, it synthesises, appraises and extends current knowledge on the (i) theoretical (i.e., economic, accounting/corporate governance, sociological and socio-psychological) perspectives and (ii) empirical evidence of the observable and less visible attributes at both the individual and committee levels and their link with a wide range (financial/non-financial) of corporate outcomes. Using the systematic literature review method, 304 articles from 59 journals in the fields of accounting and finance that were published between January 1992 and December 2018 are reviewed. The main findings are as follows. First and theoretically, agency theory is the most dominant applied theory/studies with no application of theory at all (descriptive), whilst the application of integrated theoretical frameworks is lacking in the reviewed articles. Second, the existing empirical evidence focuses excessively on (i) monitoring instead of advisory committees and (ii) observable rather than less visible committee attributes. Third, scarcity of cross-country studies along with methodological limitations relating to measurement inconsistencies, insufficiency of variables, and dominance of quantitative studies, among others, are identified. Finally, promising future research avenues are outlined.
The purpose of this study is to present a case for the need for audit committee in Constituency Development Fund to promote corporate governance and accountability in constituency development fund management in Nairobi Province, Kenya. The study provides an analysis and critique of the extent of engagement research in the field of corporate governance and accountability in constituency Development Fund management and present case for further research that may be directed to outside Nairobi province. The study found that the extent of literature in the field of corporate governance and accountability and reporting in contrast to the field to management CDF in Nairobi had largely ignored the practice within CDF organizations. The study arguesthat CDF can benefit from the methodological and theoretical insights of audit committee and other disciplines. The study suggests where further contributions might be made by future research endeavors engaging with audit committees with organizations. Engaging audit committee in CDF governance and accountability has the potential to improve theorizing practice and the sustainability performance with organizations. Drawing on the methods and theories of other disciplines and the papers in the special issues (of audit committee) the study presents away forward for researchers engaging with audit committees in organizational practicing corporate governance and accountability.
This study attempts to investigat the relationship between audit committee characteristics (size, independence, meeting and financial expertise) and the profitability of industrial companies listed on the Amman Stock Exchange (ASE) for the years 2013 to 2017. The model of this study is theoretically founded on both the agency theory and the resource dependence theory. To examine the developed model, the data were gathered from the annual reports of 51 listed industrial firms. To analyse the data, this study utilized the panel data methodology on 51companies with 255 observations. Moreover, this study used company size and leverage as control variables. Based on the panel data results, the fixed-effect model was used to examine the effect of the experimental variables on profitability, measured by return on investment (ROI) and return on equity (ROE). The results show that the audit committee characteristics have a significant effect on profitability of the industrial companies listed on the ASE. This study evinces that the RD theory is more significant compared to the agency theory when describing CG practices in Jordan.
Based on agency theory, if equity compensation aligns audit committee members’ interests with those of shareholders, the audit committee will provide effective oversight and demand more thorough audit coverage and scope. This will result in higher audit fees paid to the external auditor. This study specifically examines the associations between the types of equity compensation of audit committee members and audit fees. Our findings show differential impacts of equity compensation of audit committee in the forms of option grants and stock awards on audit fees. Specifically, equity compensation using stock awards is more effective than using option grants in aligning the interests of audit committee members with the interests of shareholders to provide better oversight of financial reporting.
Purpose
The purpose of this paper is to investigate the effect of corporate governance factors on audit features, namely, audit fees and the selection of Big 4 audit firms within the UK SMEs context.
Design/methodology/approach
The author uses different regression models to investigate the impact of corporate governance characteristics on audit features, and employs cross-sectional time series models as well as two-stage least squares technique. In addition, the author has used logit analysis to examine the effect of corporate governance factors on the selection of Big 4 audit firms.
Findings
The author provides new evidence that governance mechanisms in SMEs affect different audit features. The results show that corporate governance mechanisms are important in determining audit fees. The author detects a positive impact of board independence, audit meeting and board size on audit fees. The author also reports evidence that governance factors determine the selection of Big 4 audit firms. In particular, the author reports that independent directors and audit diligence positively affect the decision to select Big 4 audit firms.
Originality/value
This paper investigates the under-researched relationship between audit features and corporate governance using UK SMEs. In so doing, the author aims to provide new insights into this relationship within the SMEs context.
This research aims to investigate the impact of political connection and effectiveness of Board of Commissioner and Audit Committee on audit fees. This research uses samples of Non financial companies listed in Indonesia Stock Exchange for the period 2012-2015. The Result of this study are that political connection can positively influence audit fees because the existence of political connection within the firm can increase firm’s inherent risk that assessed by the auditor and the effectiveness of board of commissioner and audit committee can positively influence audit fees because they want higher audit quality from the auditor. © 2017 Australasian Accounting Business and Finance Journal and Authors.
The aim of this study is to investigate the extent to which an Audit Committee (AC)’s own governance characteristics impact on its role effectiveness in achieving enhanced resourcing and by extension, improved the scope and quality of the Internal Audit Function (IAF). Sample is drawn from top 300 companies listed on the Australian Stock Exchange (ASX). This study combines data from a questionnaire administered to the Internal Audit Executive (IAE) with information from annual reports and financial databases. Hypotheses are developed and tested using multiple regression analysis. This analysis is supplemented by insights from a comparative case study for two companies in the sample. Results reveal that AC size is significantly positively related to the financial resources (budget) allocated to IAF, while both AC financial expertise and AC size are significantly positively related to IAF labour hours. Results also confirm that IAF’s with higher resourcing are able to concentrate those resources on areas expected of a high quality IAF. Further, comparative case study analysis gives insights to the superior ways a larger size AC can be effective in fulfilling its oversight role, building its working relationships and obtaining resources for the IAF. Study contributes to current auditing-related governance literature by introducing a comprehensive empirical model of AC effectiveness in facilitating the scope and quality of the IAF’s work. Also, the findings have implications for regulators and the Institute of Internal Auditors (IIA) in terms of the composition and functioning of ACs.
This Study has two main objectives: The first is making a critical revision of Jordanian laws and regulations concerning audit committees in order to explore to which extent they are applied in fifty industrial listed companies. The second one is to examine the effects of audit committees in reducing earnings management in these companies during (2001-2006).
The study concluded that industrial public companies fulfill the requirements of audit committees, also found that audit committee size, financial experience of audit committee members and the number of meetings do not affect in reducing earnings management, while the study found that the independency of audit committee members has an effect in reducing earnings management, it is also found that the percentage of shares that audit committee members own in the company has significantly effects on increasing earnings management.
The study recommends that the Jordanian laws and regulations concerning audit committees must be reevaluated and include deterministic terms and conditions regarding their role in reducing earnings managements, minimizing the ownership of audit committee members of the company shares and supporting independence of audit committee through increasing the number of non executives members.
Keywords: Corporate Governance, Audit Committee Characteristics, Jordanian Regulations and Laws, Earnings Management, International financial Crisis.
This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of 'ownership' and 'control.' Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions.
This study investigates whether the factors identified by prior research as being associated with intra-country Big Eight audit fees are consistent (i) among countries (across the Big Eight) and (ii) among Big Eight auditing firms (across countries). Fees from 410 audits in five countries were analysed. Results indicate a similarity in the influence of client size and complexity variables among four of the five country audit-fee models and among seven of the Big Eight audit-fee models.
Using data obtained from a sample of 314 UK quoted companies (excluding financial sector companies), this paper examines three aspects of the relationship between fees for audit and non-audit services: (a) the extent and nature of the provision of non-audit services to audit clients; (b) whether the positive association between the level of audit fees and non-audit services fees found in the majority of non-UK studies holds in the UK; and (c) whether it is possible to throw further light on the nature of the relationship between audit fees and non-audit services fees by exploring the interaction between non-audit services and other factors that appear to affect audit pricing. Our results suggest that: (i) income earned by audit firms from non-audit work for quoted clients averaged nearly 90% of the levels of audit fee earnings in 1992/93 (and more than a quarter of clients paid more for non-audit services than for the audit); (ii) the extent of voluntary disclosure of the breakdown of non-audit services was limited and the existing disclosure requirement allowed considerable variety in the manner in which non-audit services fees incurred or paid abroad were disclosed; (iii) there was a significant positive association between fees for audit and non-audit services similar to that reported in the majority of US and Australian studies; and (iv) four of the nine interaction terms introduced were significant, implying that non-audit services fees may moderate the association between other explanatory variables and audit fees.
Addresses concerns regarding perceptions and measurement of risk and the resultant confusion relating to understanding of the market for audit services. Examines the theoretical justification for a plural approach to dealing with “risk” in audit fee models. Reviews the relevant literature and undertakes a factor analysis of 229 Western Australian firms in search of evidence of plurality. Argues for recognition of the idea that risk in the audit context is composed of two separate but related concepts: audit risk and business risk.
Research on the determinants of audit fees has been conducted in a number of countries and suggests that auditee size, auditee complexity and auditor identity are important determinants of the level of the external audit fee. This paper extends earlier research in this area and has four main objectives: first, to test whether earlier findings on audit fees can be generalized to the unquoted sector; second, to test for evidence of audit fee discounting for subsidiaries; third, to present further evidence of differential audit fee pricing by different classes of auditor; and, finally, to test for regional variations in the pricing of audits. The key empirical results suggest that; first, in common with the findings of earlier studies on quoted companies, the most significant factors affecting the audit fees of unquoted companies are auditee size and complexity; second, there is no strong evidence of audit fee discounting for subsidiaries; third that Big-8 auditors were charging an audit premium for independent companies but not for subsidiaries; and finally that there were some regional differences in audit fees.
The mathematical modelling of audit fees has emerged in research as one means by which the factors which explain the level and variability of audit fees can be examined. Existing literature shows that auditee size and complexity are major determinants of audit costs incurred by an auditee. Examines the power of these and other variables in explaining the variability of external audit fees for a sample of Australia′s largest listed companies and contributes to the existing literature by examining other potentially important factors which explain audit fees, some of which are unique to the present study. Reports results for the effect of: the presence of particular audit firms (for example, Coopers & Lybrand as opposed to say, Price Waterhouse); the extent of the level of internal audit in the auditee and; industrial classification of the auditee (for example, mining, manufacturing, retail, etc.). Results show that a very high proportion of reported audit fees can be explained by linear regression models, especially for certain auditors (for example, Peat Marwick, where over 93 per cent of the variability in fees can be explained by the model) and for certain industries (for example, the building industry, where over 90 per cent of variability is explained). Notes several limitations, especially those relating to measurement difficulties.
Outlines the nature of audit committees in UK companies including
the interaction between the audit committee and the internal audit
function. Suggests that audit committees are not a panacea for
deficiencies in corporate governance.
This study examines the effect of several factors on the level of external audit fees using a multiple regression model. Audit fee data were provided by 95 US publicly held companies for the years 1983 to 1985. Variables measuring client industry membership and auditor involvement in the security registration process were proxies for client regulatory aspects. These variables were significant and provide support for the hypothesis that scale economies and/or specialization effects accrue to audit firms in dealing with the regulatory complexities faced by clients. Variables measuring auditee size and complexity, auditee/auditor loss sharing risk, and audit firm size were also significant in explaining variability in external audit fees.
Managerial accountability to shareholders is fundamental to the integrity of capital markets. Accordingly, corporate governance mechanisms have been established to minimize the risk of fraudulent financial reporting. An audit committee of the board of directors, whose responsibilities extend to the oversight of the financial reporting process, is arguably one of the more important governance mechanisms. The purpose of this paper is to examine the quality of managerial accountability to shareholders before and after the formation of an audit committee. The analysis relies on an analytical illustration to formulate empirical tests of the informativeness of accounting earnings conditional on audit committee formation. The evidence indicates that earnings are significantly more informative to market participants after formation of the audit committee. This finding is consistent with the notion that the audit committee both enhances managerial accountability to shareholders and is an effective component of corporate governance.
This study reports further evidence as to the determinants of the audit fees paid by quoted companies in the UK. It outlines a framework based on the findings from semi-structured interviews with partners in four large audit firms and the results of previous research, and tests this framework by means of multivariate analysis using 1987 data for a large sample of quoted UK companies. A model explaining 87 per cent of the variation in audit fees is constructed. The principal explanatory variables are found to be auditee size, return on shareholders equity, the number of subsidiaries, the lag between the year end and the date of the audit report, the size of the auditor, a measure of auditee diversification, the ownership structure of the auditee, and whether the auditor was based in London, with the last three being new variables introduced in this study.
The UK is the only major country within the European Union the majority of whose listed companies have formed audit committees composed of non-executive directors to monitor financial reporting, the external auditors, and internal control strength. The adoption of audit committees in contrast to the approach in Europe has arisen despite the lack of evidence on their effectiveness even in the USA and Canada, where they have been mandatory since the 1970s. This paper seeks to establish whether audit committees are effective in ensuring audit quality by protecting the auditors from fee cuts which might affect audit quality, and signal tighter internal controls which help to reduce audit time and hence audit fees. The problem is that the audit committee may be expected to exert a two-way pressure on audit fees. To the extent that audit committees should enhance audit quality, partly by ensuring that audit hours are not reduced, an audit committee may be expected to increase total audit fees. At the same time, an audit committee may reasonably be thought to be a proxy for internal control strength. Ceteris paribus, companies with strong internal controls may be expected to pay lower audit fees than those with weak internal controls. Our paper argues that the 'quality' aspect of the audit can be captured through a dummy firm size variable, whilst the internal control aspects can be captured through dummy risk and complexity variables. The hypotheses examined are that size related audit fees are higher in companies with an audit committee; and that risk- and complexity-related audit fees are lower in companies with audit committees. The hypotheses are tested by developing a regression model for audit fees of a sample of the companies which comprise the FT-SE 500, with variables being included for the presence or absence of an audit committee. The results show that the relationship between size-related audit fees and the presence of an audit committee is positive and statistically significant, but that although there is a negative relationship between risk- and complexity-related audit fees and the presence of an audit committee, the relationships are not conclusively significant. The findings provide support for the contention that audit committees are at least partially effective in preventing reductions in the audit fee to levels where the quality of the audit may be compromised.
This paper proposes a model of audit fee determination based upon size and other characteristics of the auditee and the auditor, and upon whether there has been a recent change of auditor (which might lead to a low-balling effect). A novel feature of the model is that auditee size is measured in two dimensions, sales and assets, and is allowed to have a quadratic relationship with audit fee. The model was estimated for a sample of large listed UK companies for the years 1981 to 1988. The results support the low-balling hypothesis and also provide insights into the distinctive role of the Big 8 firms in the audit market.
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
This research examines perceptions of agency conflict via survey results from external auditors, internal auditors, management, and the audit committee chair of the board of directors. The results suggest the existence of agency conflicts between management and audit committee chairs regarding variables that constitute full financial disclosure and for variables that influence discretionary accounting procedure choices.In addition, the results provide evidence with regard to both internal and external auditor positions in agency conflicts. The external and internal auditors exhibited significant perceptual differences with the audit committee chairs about the variables hypothesized to influence accounting choices, but did not exhibit significant differences with management's perceptions.
This inductive study offers an examination of 23 cases in which informants from firms engaged in large-scale global projects reported unforeseen costs after failing to comprehend cognitive-cultural, normative, and/or regulative institutions in an unfamiliar host societal context. The study builds on the conceptual framework of institutional theory. The findings, which include propositions and a generic narrative model, contribute to theoretical knowledge of how institutional exceptions arise, how they are resolved, and how they typically involve three general phases: ignorance, sensemaking, and response. The findings also articulate the kinds of institutional transaction costs that an entrant incurs in each of the three phases, and the conditions that lead to the growth of these costs. Journal of International Business Studies (2008) 39, 562–588. doi:10.1057/palgrave.jibs.8400370
A blatant slur on executive directors
- J Corrin
The Finance Director and the Auditor
- R Hussey
- A Jack
An examination of the relationship between audit committees and external auditors
- L P Kalbers
An examination of the effects of environment and explicit internal control on planned audit hours
- S Kaplan
The effect of audit committees on the likelihood of receiving a qualified audit opinion
- G S Monroe
- P Robinson
- S T Teh
Code of Recommended Practice on Non-executive Directors
- Promotion of Non-Executive Directors (ProNed)
Non-executives and the expectations gap
- C Reay
Audit Committees. Current Practices in Canada, the United Kingdom and the United States
- Accountants International Study Group
The Future Development of Auditing
- Auditing Practices Board
Composition of company boards
- Bank
- England
Chmn) (1992), Financial Reporting Council
- A Cadbury