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Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature
Abstract
The article describes the factors that contribute to audit committee effectiveness. An effective audit committee has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. The determinants of audit committee effectiveness includes the audit committee composition, authority, resources and diligence. The major U.S. stock exchanges require that audit committees be composed of at least three independent, financially literate directors. Team issues also are relevant when considering audit committee composition. The audit committee derives its authority from the full board of directors, federal law and exchange listing requirements. Authority is viewed as a function of the audit committees responsibilities and influence. Audit committee authority also depends on the audit committees relationships with management, external and internal auditors and the board as a whole. The resource component of audit committee effectiveness highlights that effective oversight is contingent upon the audit committee having adequate resources to do its job. Diligence is the process factor that is needed to achieve audit committee effectiveness.
... Previous studies on association between AC authority and information quality are limited [42,43]. The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. ...
... Previous studies on association between AC authority and information quality are limited [42,43]. The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. While some earlier studies, such as those by Dezoort et al. [42], Ika and Ghazali, [43], Ahmed Haji and Anifowose [38] considered authority exercised by audit committee members as a significant factor in their effectiveness, majority of studies have largely ignored it. ...
... The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. While some earlier studies, such as those by Dezoort et al. [42], Ika and Ghazali, [43], Ahmed Haji and Anifowose [38] considered authority exercised by audit committee members as a significant factor in their effectiveness, majority of studies have largely ignored it. In addition, as their primary focus was on performance of AC, Tumwebaze et al. [45] called for future research to explore other facets of AC's efficacy, such as authority. ...
This study aims to (1) determine the association between audit committee effectiveness and earnings quality. (2) examine whether all the audit committee effectiveness attributes such as independence, financial expertise, diligence, resources and authority are significantly related to earnings quality. Methodology: The study used a cross-sectional and correlational research design. Data were collected using a survey research instrument from the Chief Finance Officers and Heads of internal audit departments of 136 regulated firms in Uganda. Data were analyzed using the Statistical Package for Social Scientists V.26. Findings: The findings indicate that audit committee effectiveness is positive and significantly associated with earnings quality. The study also reveals that amongst all the dimensions of audit committee effectiveness, only audit committee financial expertise has a positive and significant effect on earnings quality in regulated firms in Uganda. Research implications/Limitations: This study focused only on regulated firms in Uganda. Future studies could be carried out in unregulated firms in Uganda. Originality/Value: The study is one of the few studies that examines earnings quality using a perception-based approach. Also, the study reveals that only audit committee financial expertise explains more variations in earnings quality than the other four dimensions do, in regulated firms in Uganda.
... Audit committee effectiveness is measured in terms of audit committee (AC) independence, financial expertise, authority, resources and diligence. These measures were adopted from Dezoort et al. (2002). This study looks at these attributes as a bundle because they act in a complementary or substitutable fashion (Ward et al., 2009) in attempting to reduce agency problems and protect shareholder interests. ...
... Moreover, the critical ratio of 1.96 is significant (p < 0.05) and Heterotrait Monotrait model of correlations (HTMT) (discriminant validity) ratio is < 0.85. All the path coefficients are significant: expert power (Dezoort et al., 2002) Our audit committee members have adequate knowledge and skills in financial reporting ...
... Number of committee members who generate substantive discussions and consider emerging issues as well as have access to monetary resources and information, access to management, access to external auditors and access to internal auditors (Dezoort et al., 2002) Our audit committee is of an appropriate size Authority Clearly articulated mandate of the audit committee responsibility in any particular task, extent to which AC influences decisions (Dezoort et al., 2002) Our audit committee has welldefined responsibilities in carrying out its tasks Diligence Extent to which AC meet, are motivated, incentivized and willing to work together as needed to prepare, ask questions and pursue answers when dealing with management, internal auditor, external auditors and other relevant constituents (Dezoort et al., 2002) Our audit committee regularly conducts meetings at least four times a year CEO power CEOP Structural power ...
Purpose
The purpose of this study is to establish the relationship between chief executive officer (CEO) power, audit committee effectiveness and earnings quality in regulated firms in Uganda.
Design/methodology/approach
The authors employed cross-sectional and correlational research designs, based on a sample of 136 regulated firms in Uganda. Data were collected using a questionnaire survey from Chief Finance Officers and Chief Audit Executives. Data were analyzed using a Statistical Package for Social Sciences and Partial Least Squares Structural Equation Modeling.
Findings
Results indicate that CEO power causes negative variances in earnings quality. The results also reveal that audit committee effectiveness positively relates relatively similarly with earnings quality. In addition, CEO power and audit committee effectiveness are negative and significantly related. The results further indicate that CEO power and earnings quality are mediated by audit committee effectiveness.
Research limitations/implications
CEO power creates an opaque accounting environment which may leave the stakeholders unable to evaluate the true economic reality of the firm. Audit committee effectiveness is an important enabler for reporting high-quality earnings even in the presence of a powerful CEO.
Originality/value
This study contributes toward a methodological stance of using perceptions to understand earnings quality in regulated firms in Uganda. This is probably the first study that has specifically explored earnings quality using only the fundamental qualitative characteristics of accounting information (as proxies) as enshrined in the Conceptual Framework for Financial Reporting 2018 particularly in Uganda since Her adoption of International Financial Reporting Standards in 1998. Second, the indirect effect of audit committee effectiveness and CEO power is tested.
... Previous studies on association between AC authority and information quality are limited [42,43]. The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. ...
... Previous studies on association between AC authority and information quality are limited [42,43]. The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. While some earlier studies, such as those by Dezoort et al. [42], Ika and Ghazali, [43], Ahmed Haji and Anifowose [38] considered authority exercised by audit committee members as a significant factor in their effectiveness, majority of studies have largely ignored it. ...
... The assumed responsibilities of AC members are written in AC charter, which includes supervising internal auditors, external auditors, and demanding that all accounting transactions are included in books of accounts [42,44]. While some earlier studies, such as those by Dezoort et al. [42], Ika and Ghazali, [43], Ahmed Haji and Anifowose [38] considered authority exercised by audit committee members as a significant factor in their effectiveness, majority of studies have largely ignored it. In addition, as their primary focus was on performance of AC, Tumwebaze et al. [45] called for future research to explore other facets of AC's efficacy, such as authority. ...
This study aims to (1) determine the association between audit committee effectiveness and earnings quality. (2) examine whether all the audit committee effectiveness attributes such as independence, financial expertise, diligence, resources and authority are significantly related to earnings quality. Methodology: The study used a cross-sectional and correlational research design. Data were collected using a survey research instrument from the Chief Finance Officers and Heads of internal audit departments of 136 regulated firms in Uganda. Data were analyzed using the Statistical Package for Social Scientists V.26. Findings: The findings indicate that audit committee effectiveness is positive and significantly associated with earnings quality. The study also reveals that amongst all the dimensions of audit committee effectiveness, only audit committee financial expertise has a positive and significant effect on earnings quality in regulated firms in Uganda. Research implications/Limitations: This study focused only on regulated firms in Uganda. Future studies could be carried out in unregulated firms in Uganda. Originality/Value: The study is one of the few studies that examines earnings quality using a perception-based approach. Also, the study reveals that only audit committee financial expertise explains more variations in earnings quality than the other four dimensions do, in regulated firms in Uganda.
... The number of meetings as a determinant of the AC diligence showed that it was the best indicator of the effectiveness of this governance body. Previous studies depended predictably on the total number of AC meetings as a metric for AC diligence because other diligence measures are not publicly observable [53,54]. In general, previous studies found that more frequent AC meetings decreased the probability of problems in financial reporting [53,[55][56][57][58]. ...
... Previous studies depended predictably on the total number of AC meetings as a metric for AC diligence because other diligence measures are not publicly observable [53,54]. In general, previous studies found that more frequent AC meetings decreased the probability of problems in financial reporting [53,[55][56][57][58]. The relationship between AC meetings and firms' performance has been extensively discussed among scholars. ...
... In the same way, the result is consistent with the study on AC size [38][39][40][41], AC independence [42][43][44][45][46], AC expertise [36,37,42,[103][104][105], and AC diligence [38,53,59]. This study argues that when the company has more representatives on AC, the committee employs more diverse skills and knowledge to improve supervision and eventually positively affect performance. ...
Article History Keywords Corporate governance Corporate social responsibility disclosure Islamic banking Shari'ah supervisory board. This research examines the factors influencing the performance of Islamic banks in Southeast Asia (SEA) and the Gulf Cooperation Council (GCC) regions. It focuses on three key areas: corporate governance (CG), Shari'ah supervisory board (SSB) mechanisms, and corporate social responsibility (CSR) disclosure. This research employed rigorous panel data regression analysis, covering data from 79 Islamic banks spanning the years 2012 to 2021. This analytical approach revealed intricate connections between CG practices, SSB mechanisms, CSR disclosure, and bank performance. Strong CG and SSB mechanisms, in conjunction with robust CSR disclosure, positively impacted Islamic bank performance. These factors facilitated value creation, accountability, and stability, even during the COVID-19 pandemic. This underscores the significance of enhancing CG, SSB mechanisms, and CSR disclosure to bolster transparency and trust within the Islamic banking sector. Collaborative efforts among regulators, investors, and creditors are imperative for enforcing regulations, formulating CSR guidelines, and strengthening governance. This research contributes to a deeper understanding of CG practices, their impact, and the role of CSR disclosure in Islamic banks. It offers valuable insights for stakeholders and enhances comprehension of these mechanisms within the context of the SEA and GCC regions. Contribution/Originality: This study contributes to the literature by offering a holistic examination of Islamic banks, focusing on key factors, employing rigorous methodology, and providing insights amidst global challenges. It offers practical implications for stakeholders and contributes to the advancement of knowledge in Islamic finance.
... The Audit Committee is one of the main components in the corporate governance mechanism that forms the basis of stakeholder expectations in limiting the behavior of company managers (Gendron & Bédard, 2006). There are three main components in determining the effectiveness of the audit committee, namely composition, authority, and resources (Dezoort et al., 2002). Combining members who can provide valuable insights to the committee with members who have better knowledge and experience can produce a team that has high (Bromilow et al., 2011). ...
... Combining members who can provide valuable insights to the committee with members who have better knowledge and experience can produce a team that has high (Bromilow et al., 2011). For the audit committee to work effectively, the company must determine the resources needed, such as the number of meetings for a year, the number of audit committee members, and the educational background of the members (Bromilow et al., 2011;Dezoort et al., 2002). In Indonesia, the provisions of the audit committee are regulated in POJK 55/POJK.04/2015. ...
... Members of audit committee that have competency in accounting and/or finance will be more effective in conducting supervision because they have experience and also previous education in handling hedging. In addition, this background suitability is in accordance with the characteristics of an effective audit committee (Bromilow et al., 2011;Dezoort et al., 2002). Thus, we hypothesize following. ...
This study aims to analyze the role of audit committee and risk monitoring committee (RMC) on firm risk management measured by hedging. Firms with both committees will have better governance in monitoring risk. The population of this study is companies listed in IDX. This study uses samples of 104 non-financial companies. Using panel data regression, we find that the composition of audit committee members who have financial and/or accounting background have a significantly positive effect on hedging, meaning that an audit committee with such a higher composition will encourage firms to hedge more to reduce risk exposure. Meanwhile meetings and size of audit committee are insignificant. The presence of RMC has a negatively significant effect on firm hedging, meaning that the firm is more capable in identifying risk to determine the most appropriate way to mitigate risk, where not all risk can be mitigated by hedging. Keywords: Audit Committee; Risk Monitoring Committee; Hedging
... Although previous authors have examined the AC literature (e.g., DeZoort et al. 2002;Cohen et al. 2004;Turley and Zaman 2004;B edard and Gendron 2010;Carcello et al. 2011a), to our knowledge, there are no published syntheses of AC research over the past decade that offer extensive views of AC research and how reported findings have stabilized after the disruption surrounding SOX. Based upon our synthesis of research published between 2010 and 2020, we develop a framework of AC oversight (see Figure 2), encompassing AC inputs, processes, and outputs. ...
... Our framework shares similarities with the input-process-output approach in DeZoort et al. (2002) and B edard and Gendron (2010), as well as key elements of those studies' specific AC areas. Our focus on the AC environment and AC relationships is similar to that in Cohen et al. (2004), and the input-output focus of many studies we synthesize is also consistent with the Carcello et al. (2011a) framework. ...
... 6 Refer to Table 2 in the Online Appendix that summarizes AC characteristic research by output or AC process examined. 7 DeZoort et al. (2002) view AC diligence (number of meetings) as a process element, but that study preceded studies that provide more insight into AC processes than simply the number of AC meetings (e.g., Gendron, B edard, and Gosselin 2004;Beasley, Carcello, Hermanson, and Neal 2009). We view the number of AC meetings as an AC characteristic, whereas what the AC actually does inside and outside of meetings reflects the AC process. ...
Audit committees (ACs) are a topic of significant research interest, with numerous studies published each year. We synthesize AC findings from articles published between 2010 and 2020 to develop a conceptual framework encompassing AC inputs, processes, and outputs. We then provide new insights related to AC characteristics, AC relationships, the AC environment, and AC oversight processes. We encourage future research addressing underexamined AC characteristics (e.g., diversity, busyness, and tenure); AC relationships, environment, and processes; and outcomes related to internal audit and internal controls. We also encourage researchers to focus on four contemporary AC issues (remote work; new technologies and cybersecurity; environmental, social, and governance (ESG) and climate; and AC workload) and to embrace diverse research methods and theories. We provide numerous specific research questions to guide future research toward advancing our understanding of ACs and their impact on corporate governance.
... This perspective, further explored by Mangena and Chamisa (2008), Beasley et al. (2009), and Mangena and Pike (2005), suggests that the AC's efficacy in overseeing management is contingent upon its structure and resources, including experience and qualifications of AC members, compensations, and diligence. This viewpoint is echoed in academic literature (see Beasley & Salterio, 2001;DeZoort et al., 2002;Carcello & Neal, 2003) and by global corporate governance committees (such as the Blue-Ribbon Committee, 1999;Smith Committee, 2003), as well as being recognized in the Libyan CG Code (2010) for its relevance in assisting boards of directors to monitor managerial conduct and safeguard shareholder interests in the banking sector (Masli et al., 2022). ...
... In the present study, a questionnaire was utilised to collect the perspectives of five groups of actors regarding the research questions (DeZoort et al., 2002;Bedard et al., 2004;Turley and Zaman, 2007;Lin et al., 2008;Sharma et al., 2009;Braswell et al., 2012;Ghafran and O'Sullivan, 2017;Jachi and Mandongwe, 2019;Hanoon et al., 2020;Gholami et al., 2021). The survey questions were derived from issues and inquiries raised in previous studies, with careful consideration given to their relevance to the Libyan context and the Libyan CG Code (2010) whenever feasible. ...
The purpose of this research paper is to investigate the perspectives of key stakeholders on strategies to improve the effectiveness of audit committees (ACs) in African economies, with a specific focus on the Libyan banking sector.
The study employs a mixed-methods approach, combining questionnaire surveys and semi-structured interviews. The data collection process involves gathering responses from participants through questionnaires and conducting in-depth interviews to gain deeper insights into the subject matter.
The research findings highlight several key points. Firstly, fortifying Libya's accounting and auditing profession emerges as the most widely endorsed suggestion for enhancing AC effectiveness. Secondly, participants identified various actions that can strengthen ACs, including appointing members with financial expertise, refining the legal requirements governing AC responsibilities, securing board support, enhancing Libya's legal and regulatory framework, adequately compensating AC members, and reducing government intervention in AC practices.
This research contributes to the field of corporate governance by providing valuable insights into the perspectives of stakeholders on enhancing AC effectiveness in the Libyan banking sector, within the broader context of African economies. The findings offer actionable plans for regulators and policymakers seeking to improve AC effectiveness in Libya.
... Through continuous monitoring of managers' opportunistic behaviors, the AC plays a major role in improving the quality and accuracy of financial information and reducing information asymmetry between managers and shareholders, thus reducing agency costs (Archambeault et al., 2008). In listed companies, an effective AC is expected to improve stock market transparency (McMullen and Raghunandan, 1996;DeZoort et al., 2002) and improve the quality of accounting information (Beasley, 1996;Abbott et al., 2004;Pucheta-Martínez and De Fuentes, 2007). Financial scandals and successive losses of shareholders and investors erode trust in financial reporting, and it is the duty of the management, including the AC, to improve the quality of information for the benefit of all stakeholders, especially the shareholders (Alavi and Ghaemi, 2017). ...
... The literature on AC effectiveness is extensive, and the results have been mixed. However, several factors that influence AC effectiveness have been identified, including stock ownership, power, financial expertise and industry expertise (DeZoort, 1998;Kalbers and Fogarty, 1993;DeZoort et al., 2002;Abbott et al., 2004;Carcello et al., 2002;Beasley, 1996). The present research focuses on ACCs such as financial expertise, independence, tenure and female membership. ...
Purpose
The literature on the influence of audit committees (AC) and cosmetic accounting (CA) is scarce. AC plays a unique and vital role in boosting earnings reliability in countries with weaker application of accounting standards or weaker legal protection for investors. AC, therefore, are considered to be one of the essential tools available to directors in supervising management decisions regarding financial reporting. This paper aims to examine the influence of AC characteristics (ACC) on CA and how this relationship is moderated by the audit fee.
Design/methodology/approach
This study used probit regression to analyze 1,218 firm-year observations of listed companies in Tehran Stock Exchange from 2014 to 2020.
Findings
The results show that AC financial accounting expertise, AC independence, female AC membership and AC tenure were negatively related to CA. The negative relationship is highly pronounced when a firm incurs higher audit fees, and audit fees moderate the relationship between ACC and CA. Results for the robustness checks show that only AC independence was significant, and the results of other characteristics were not significant.
Research limitations/implications
This research was conducted in an Iranian setting where the formation of ACs is on the verge of regulation; therefore, the data used for the study only contains the seven-year period of ACs’ statutory activity. In addition, a lack of consensus on the precise measures of an AC’s effectiveness could be considered as a restrictive factor.
Originality/value
The findings provide an initial insight into the effect AC on CA and moderating effect of audit fee on the relationship between ACC and CA.
... The commitment of an audit committee, seen through meeting frequency, attendance rates, and its size, demonstrates the committee's capacity to meet stakeholder obligations (DeZoort et al., 2002). Regular meetings, usually quarterly, enhance managerial supervision (Farber, 2005) and strengthen committee effectiveness (Song & Windram, 2004). ...
... Abbott et al. (2004) find no correlation between committee size and restatements. These diverse findings underscore the importance of committee diligence in stakeholder oversight (DeZoort et al., 2002). Hence, the formulated hypotheses are: ...
This research investigates how various attributes of audit committee members—such as expertise, dedication, and gender—affect aggressive tax planning. The results reveal a significant correlation between audit committee expertise and tax aggressiveness. This underscores how professional experience enhances comprehension of corporate matters, thereby boosting members’ efficiency in tax planning and risk assessment. Moreover, the continuity of the audit committee, specifically its size, plays a crucial role in determining tax aggressiveness by ensuring ample resources to facilitate supervisory roles in financial reporting and meeting tax obligations. Conversely, the committee’s continuity, encompassing meeting frequency and attendance, doesn’t prove effective in curbing tax aggressiveness. Notably, the findings regarding the committee's gender align with the notion that it doesn't influence limiting tax aggressiveness due to the lower representation of women compared to men on the committee.
... It ensures the fairness and reliability of financial information. DeZoort et al. (2002) assert that frequent AC meetings promote directors acquiring experience and knowledge about company business. AC meetings also support monitoring the role of AC in reinforcing internal controls strategies and reducing business risks (Jensen, 1993;Fama & Jensen,1983), hence limiting agency conflict between management and owners through controlling opportunistic executive actions (Sultana et al., 2015;Raweh et al., 2021). ...
... Consequently, reducing stickiness costs. This result is also aligned with agency theorists who claim that more audit committee meetings enable directors to gain expertise and knowledge about the operations of a business (DeZoort et al., 2002). This supports the monitoring function of AC to reinforce internal controls and reduce business risk (Fama & Jensen,1983), hence mitigating agency conflict between managers and shareholders by reducing managers' opportunistic behavior (Fama & Jensen,1983;Sultana et al., 2015). ...
This study aims to present further evidence of cost stickiness by employing Selling, General, and Administrative (SG&A) costs. It also provides empirical evidence on the effect of audit committee meetings and audit quality on cost stickiness. The study used data from listed companies on the Saudi Arabian stock exchange during 2015–2019. Based on pooled panel data regression, the study proves that the SG&A costs are sticky. The results show the level of SG&A costs increases more with an increase in sales revenue (activity) while it decreases less with an equivalent reduction in sales revenue (activity). Also, this study finds that the frequency of audit committee meetings decreases the magnitude stickiness of SG&A costs, which supports the view that frequent meetings of AC significantly enhance its overseeing function and effectiveness. The study further reveals that audit quality “by BIG4 audit firms” is not related to reduced cost stickiness. This result implies that there is no difference in CS between companies audited by BIG4 or by non-BIG4. In general, the research highlights the importance of AC diligence (i.e., meetings) in improving its effectiveness and controlling management’s discretions affecting the cost structure in the context of sticky cost behavior.
... According to Stamper (2011), the audit committee serves as a potential organ of the organization responsible for ensuring organizational effectiveness. These committees play a pivotal role in ensuring the credibility of financial reporting, the effectiveness of internal controls, risk management, and the adherence to legal and ethical standards within organizations (DeZoort et al., 2002). Okiro et al. (2018) have identified factors such as audit independence, a well-defined mandate, unrestricted access to information, and competent leadership as key contributors to enhancing the effectiveness of audit committees. ...
... Research supports the idea that more frequent meetings of the audit committee lead to higher quality and credibility of financial statements (Lin et al., 2015). DeZoort et al. (2002) suggest that diligence, measured by the number of annual meetings and the committee's engagement in oversight duties, is crucial in addressing financial reporting issues and ensuring the quality of reported earnings. Diligence is demonstrated through members' willingness to collaborate as a team, actively posing questions, and seeking responses from management, internal auditors, external auditors, and other stakeholders. ...
This study investigates the determinants of audit committee effectiveness in Tanzania's public sector. Qualitative methods were employed to gather insights, using purposive sampling to select 14 participants from various public sector organizations. Interviews were conducted to ensure diverse perspectives on the subject matter. The research findings emphasize the significance of several factors in audit committee effectiveness, including well-defined terms of reference, resource availability, influence in decision-making, and committee member selection procedures. These factors encompass terms of reference, the availability of resources and support, the capacity to exert influence, the process of selecting audit committee members, communication and cooperation among committee members, the promotion of a culture of accountability, and the establishment of a conducive regulatory environment. The study recommends addressing these factors to enhance governance practices, strengthen accountability, and improve internal control mechanisms within public sector organizations.
... While Kalbers and Fogarty (1993); PwC (1999); and Rittenberg and Nair (1992), in their respective definitions, emphasized on ability and competency of AC to fulfill its responsibility, NACD (2000) emphasizes the outcome (value addition to its board and the corporation) of the committee. DeZoort et al. (2002) link both aspects through the process AC undertakes in their attempt to comprehensively define the term AC effectiveness. In a synthesized framework, they have identified the determinants of AC effectiveness by stating, "An effective AC has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts." ...
... This definition seems conceptually comprehensive and operationally feasible, as evident in the work of Ika & Ghazali (2012). Driven by the definitional premise, DeZoort et al. (2002) identified four elements to determine AC effectiveness: Composition, Authority, Resources, and Diligence. ...
... These will culminate in lower agency costs and increased stakeholder confidence and value, thus increasing FP. The effectiveness of AC pivots around its characteristics, as evident from the extant literature (Akhtaruddin and Haron, 2010;DeZoort et al., 2002;Dhaliwal et al., 2010;Li et al., 2012). ...
... ACE has been defined in many ways in different contexts. While the 1990s definitions (Kalbers and Fogarty, 1993;Rittenberg and Nair, 1992;PwC, 1999) emphasized the ability of AC to fulfill its responsibility, definitions in the early 2000s highlighted the outcome through value addition (NACD, 2000) and on the determinants of AC (DeZoort et al., 2002). Through a synthesis of these definitions, we comprehensively define ACE as "An effective AC, through its composition, has enough members to discharge its duties on time, and has diligent members with expertise, experience, authority, and resources to ensure reliable reporting, internal controls, audit process, and monitoring the management while remaining independent of their influence, to safeguard its stakeholders' interests." ...
Purpose
This study aims to examine the relationship between audit committee (AC) effectiveness and firm performance (FP) with the moderation of knowledge intensity while observing the varying effect of each AC characteristic’s influence on its effectiveness.
Design/methodology/approach
This study examines 133 companies covering five years from 2016 to 2020 using the partial least squares-structural equation model and weighing AC effectiveness-related characteristics through multiple regression between AC characteristics and the AC effectiveness construct.
Findings
The results indicate that the knowledge intensity of the firms negatively influences the relationship between their AC effectiveness and FP, implying that the ACs are not sophisticated enough to monitor the knowledge component of the firm’s assets. Among AC characteristics, six attributes have a significant positive impact, two have a negative impact and three have no significant influence on AC effectiveness while influencing FP.
Research limitations/implications
Apart from guiding the regulators, managers and other stakeholders to choose an appropriate mix of AC characteristics for enhancing FP, the study contributes to the existing literature by providing evidence that ACs are ineffective in monitoring the knowledge assets of the company compared to physical assets.
Originality/value
This study is pioneering in investigating the moderation role of knowledge intensity on the relationship between AC effectiveness and FP. While providing a comprehensive and holistic view of AC effectiveness by considering 11 AC characteristics’ individual as well as aggregate effects on FP, it removes the obsolescence of earlier research in the Indian context owing to the latest regulatory reforms.
... AC is granted authority to fulfill its responsibilities, and consequently, AC's authority signifies its responsibilities (DeZoort et al., 2002). AC responsibilities should be registered in an AC charter, which guides the committee and acts as its power source (Ika and Ghazali, 2012). ...
... ACE also relies on ample AC resources (DeZoort et al., 2002). These resources are manifested through AC size, multiple directorships and gender diversity of the committee. ...
The paper investigates the effect of eleven Audit Committee (AC) characteristics on Firm Performance (FP). It identifies characteristics that significantly influence FP and develops an index to provide a holistic approach to the relationship between AC effectiveness and FP. It applies cross-sectional time-series FGLS regression and checks robustness using panel-corrected standard error regression after identifying heteroscedasticity, autocorrelation, and cross-sectional dependence of 375 observations. The study finds a significant positive effect of AC expertise, attendance in AC meetings, and the absence of executive directors in AC on both Return on Assets (ROA) and market capitalization of the firms. Gender diversity is exclusively significant for ROA, while shareholding positively impacts firm's market capitalization. This study is the first to use some new individual AC characteristics like the absence of executive directors in AC and AC charter and representation of AC members in board meetings.
... This review summarizes the key findings and contributions of previous research. Studies have consistently shown that the CEO's monitoring role is crucial in ensuring audit quality (DeZoort et al., 2002;SOX, 2002). Effective monitoring by the CEO can lead to improved financial reporting quality and reduced audit risk (Ashbaugh et al., 2003). ...
This study explores the effects of CEO characteristics on audit quality of publicly listed companies in Nigeria, for ten (10) years, covering 2014-2023. The research sample includes 154 publicly listed companies in the Nigerian Exchange. The study relationships are tested by using REM Binary Logistic Regression. The results revealed a positive significant effect of CEO gender, education, ownership, and tenure on audit quality. In contrast, the results showed a negative significant effect of CEO turnover on audit quality. Also, the results revealed a statistically insignificant effect of firm size, profitability, and listing age on audit quality. However, the result shows that firm liquidity and firm leverage have significant effects on audit quality. The summary of the study findings plays an active role in the CEO's relationship with a firm's audit quality. We also suggest effective ways to enhance the predictive performance of our model as estimated in this study. The study is limited by the number of samples, specifically 154 companies. We expect that further research can increase the total observations by adding to the research period or using company samples from other countries. Note also that our study results show that the R-square is 27.50%.
... From the agency theory perspective, AC serves as a corporate governance mechanism to maintain the interests of shareholders (principal) (Altass, 2021). It is well believed that AC thrives well in dynamic and competitive markets (Dezoort et al., 2002). ...
Objective: To examine the impact of board of director (BOD) characteristics and audit committee expertise (ACE) on financial distress (DIS). Theoretical Framework: In this topic, the main theories that underpin the research are agency theory, resource dependence theory, and groupthink theory. Method: This study employs pooled OLS multiple regression verified with several robustness tests utilizing data collected from annual reports of basic material firms listed in TASI of Saudi Arabia. Results and Discussion: The findings suggest an inverse relationship between board size (BDS) and the Altman Z-Score; larger boards correspond to higher DIS levels. Board independence (IND) is positively associated with DIS proxy, suggesting that greater independence improves financial health. Similarly, a higher frequency of board meetings (MTG) shows a positive relationship with the Altman Z-Score, implying better financial health. Audit committee (AC) with high composition of financial expertise (ACE) are shown to improve firms’ financial position. Additionally, the model incorporates an interaction term between ACE and IND, revealing a negative impact on mitigating financial distress. Research Implications: These findings highlight the nuanced roles that the BOD and ACE play in managing DIS within a competitive and evolving market. Originality/Value: This study attempts to offer a valuable contribution to existing literature of corporate governance and financial accounting by investigating the possible influence of board of director characteristics and audit ACE on DIS. Through robust analysis and counter-intuitive findings, it challenges conventional beliefs by revealing an inverse association between BDS and DIS, while underlining the positive effects of IND, MTG frequency, and ACE on financial health. The study's inclusion of an interaction term between ACE and IND further enhances our understanding of the nuanced roles played by these corporate governance attributes in managing financial distress within a a highly growing and evolving market.
... La taille du comité d'audit est mesurée par le nombre d'administrateurs siégeant au comité d'audit (Goh, 2009). Un comité d'audit de taille suffisante peut aider le comité à s'acquitter de sa tâche sans surcharge (Dezoort et al., 2002). ...
The purpose of this thesis is to examine how the effectiveness of corporate governance mechanisms affects the firm's cost of debt for family and non-family firms. Although, US’ companies have a debt oriented financial system, financial institutions have little direct implications in corporate governance structures (such as board of directors and audit committee for example). Thus, those external capital provides might pay attention to the overall quality of monitoring devices set up within companies as well as the quality of financial reporting. Hence, we may expect an inverse relationship between the quality of corporate governance mechanisms and cost of debt. Using S&P 500 index data, over the period 2010 to 2017. The empirical findings reveal that board of directors’ quality and audit committee’s quality have a significant reducing effect on the cost of debt for full sample and non-family firms. Whereas for family firms, board of directors’ quality has is significant reducing effect on cost of debt and audit committee’s quality does not. We further, examine the impact of corporate opacity on cost of debt. we provide that the moderating effect of corporate opacity becomes more pronounced an investor's perception of controlling families’ moral hazard of expropriation is higher. We conclude then that corporate capacity as an important reference in assessing the extent of potential agency for conflict in US.
... Similarly, Hillman et al. (2001) underscored that influential audit committees can improve corporate governance practices, ultimately benefiting all business partners. DeZoort et al. (2002) discussed the importance of partners and argued that securing and protecting partners' interests is the primary objective of the relevant audit committee. Ayam (2020) reported that corporate governance behaviour with audit committees is positively related to the company's performance and its participants' well-being. ...
This study aimed to analyze the ownership structures and corporate governance. Good corporate governance helps companies become more efficient, improve access to finance, reduce risk, and avoid substandard governance (Kontogeorga et al., 2022; Mustafa & Morina, 2022; Prasad et al., 2022; Lapina et al., 2016; Raja & Kostyuk, 2015). The study has followed a qualitative research paradigm and systematic review protocol, specifically the PRISMA technique, and included 65 papers published in journals with impact factors during the timeline of 2010–2022, focusing on Europe, the Middle East, Asia, and the US by taking topics like time, article type, regions, topics, theory breakdown for ownership structure, theory breakdown for corporate governance, and research methods. It was found that most of the papers were published in 2022. The majority of the articles were empirical, and most were published in Europe. The mainstream papers were related to corporate governance. The theory used in the breakdown of ownership structure was the firm theory, while for corporate governance, the theory was the agency theory, and most of the articles utilized the analysis method. The study recommended that, despite significant research in this area, further research is still needed, especially in developed countries. Most research work is experimental and, and therefore, requires a substantial amount of conceptual work.
... Conversely, studies that have examined the positive effect of audit committee size on financial reporting quality have concluded that a large audit committee has sufficient resources to appoint members with multiple qualities that improve the evaluation of the role, responsibilities, and work of the external auditor. [15,34] has more of a mediation role to resolve conflicts arising in financial statements and ultimately reduce the ARL [14]. On the contrary, Bdard and Gendron [10] have underscored this assertion, that the expenditure incurred in maintaining larger committees surpasses the resultant advantages. ...
The primary purpose of conducting the above research is to use the meta-analysis approach to prove whether past researches provide a consistent picture of the drivers of audit report delays or not. These variables include; The independence of the board of directors, the size of the board of directors, the size of the audit committee, the independence of the audit committee, the financial expertise of the audit committee, the number of meetings of the audit committee, and the duality of the CEO. To achieve the goal of the above research, the approach of Lipsey and Wilson (2001) was used and also, and the implementation of Cochran and Egeer's Q tests including 9 domestic articles and 19 foreign studies during the years 2010 to 2023 was investigated. The results showed that there is no significant relationship between the size of the board of directors and the size of the audit committee, the independence of the audit committee, the number of meetings of the audit committee, and the duality of the CEO with the ARL. However, there is a significant negative relationship between the board of director's independence and the audit committee's financial expertise. The activity of expert auditors in the audit committee can speed up the audit process of companies and ensure that financial statements reach users on time. In addition, shareholders can take the main step toward timely financial statements by electing an independent board of directors. Keywords: Independence of the board of directors , audit report lag, size of the audit committee, size of the board of directors, meta-analysis 2020 MSC: 62P10
... Audit committee effectiveness can be defined in various ways (DeZoort et al., 2002). Previous research focused on audit committee composition to measure quality (Carcello & Neal, 2003;Klein, 2002;Krishnan, 2005). ...
This chapter investigates the correlation between the attributes of audit committees and the extent of Corporate Social Responsibility (CSR) initiatives among Spanish companies listed in the Spanish Monitor of Corporate Reputation. Our analysis employs multiple regression techniques, utilizing data from a non-uniform panel encompassing Spain’s top 100 reputable firms from 2011 to 2022. Consistent with earlier research, CSR performance is gauged using the Spanish Monitor of Corporate Reputation index. The audit committee’s features are assessed through three variables: size, level of independence and frequency of meetings. The research reveals a strong and positive correlation between Corporate Social Responsibility practices and specific audit committee characteristics, including the presence of independent members and the frequency of committee meetings. In addition, we provide evidence of a positive association between Corporate Social Responsibility practices and audit committee quality. Nonetheless, we observe no notable correlation between the size of the audit committee and the implementation of Corporate Social Responsibility practices.
... The board of directors establishes an audit committee with the main responsibility of overseeing financial reporting. While creating an audit committee offers several advantages, prior research highlights that certain factors, such as the committee's size, composition, level of expertise, and meeting frequency, can significantly influence their effectiveness in monitoring financial activities (DeZoort et al., 2002) According to several studies, companies with more audit committee meetings have fewer financial restatements (Abbott et al., 2004), are less likely to face sanctions for fraud and aggressive accounting (Abbott et al., 2000;Beasley et al., 2000), and have fewer instances of earnings management (Xie et al., 2003). According to these studies, effective monitoring is associated with audit committees that meet frequently throughout the financial year. ...
This study aims to identify the impact of corporate governance on the audit quality of the organization in the context of the United Kingdom. The largest 100 companies by market capitalization listed on the London Stock Exchange (LSE) spanning the fiscal years 2017 and 2022 have been used as the sample for the study. Based on the findings it was revealed that the number of audit committee meetings positively and significantly influence the audit quality by impacting audit tenure and auditor fees. Even though it had no impact on audit fees, this could be a façade which is later recovered through non-audit fees. The variable Board Diversity was identified to be not impacting audit quality at all, hence the mere presence or increasing the diversity would not evidently increase the audit quality though boasted otherwise in many other studies. Moreover, Board Meetings tend to have a negative relationship with audit tenure and auditor fees which may be a consequence of intense intervention of the board that would inversely affect the willingness of auditors to work and also could be a mechanism to reduce the role of auditors to manipulate the records or reduce the cost of auditors. According to the findings of the study, one of the major factors affecting the audit quality is Board size which creates complexities, too many opinions leading to reduced tenure (negative relationship) and as a result of increased workload may be an increase in audit and non-audit fees to ensure the quality of audit amidst the chaos or complexities. Moreover, Independent directors astonishingly are revealed to be having no impact on audit quality highlighting the need for quality over quantity to improve audit quality.
... With the constant evolution of the global business landscape in the 21st century, from game-changing technological advancements to sweeping regulatory reforms, the foundation of commerce and governance is continuously shifting. In this state of constant change, IA serves as a crucial guidepost, leading organizations towards operational consistency and accountability (DeZoort et al., 2002). Naturally, these dynamics spark academic and professional curiosity, leading to questions about how the effectiveness of internal auditing can be measured, optimized and contextualized in this rapidly changing environment. ...
In this bibliometric analysis, the study explores the evolution of internal auditing and its transformation from a basic financial oversight function to a critical entity that manages various aspects of organizational culture, IT challenges, risk management and more. The study emphasizes the multifaceted role of modern auditors who must combine traditional practices with the demands of a rapidly changing business environment. Today’s auditors are instrumental in shaping resilient, ethical and socially aware companies. Looking back in time, the study illustrates how the discipline has grown in response to global financial crises, focusing on transparency, risk management and expanded auditing techniques. This evolution positions auditors as strategic partners within the organization rather than simply financial scrutineers. Furthermore, the study emphasizes the interplay between effective auditing and overall governance structures, highlighting that internal auditing is a nuanced craft continuously refined by context-specific variables. A thematic cluster analysis reveals the discipline’s complexity, emphasizing its fundamental principles and emerging focus areas. Finally, the study underscores the adaptability and future-focused nature of internal auditing, which remains committed to transparency, accountability and excellence in a dynamic global landscape.
... AC Size (+/− ) is defined as the number of audit committee members. It is a measure of audit committee resources to ensure effective monitoring (DeZoort, Hermanson, Archambeault, & Reed, 2002). AC Tenure (− ) is defined as the average of the audit committee members' tenure on the board. ...
To restore investor confidence and promote the integrity of financial accounting information provided to investors , following the passage of the Sarbanes-Oxley Act (SOX), the SEC adopted two new rules for public firms in early 2003, requiring the disclosure of audit committee financial expertise (ACFE) per SOX 407 and the reconciliation of non-GAAP financial measures to those most comparable in GAAP (Regulation G) per SOX 401 (b). Using quarterly filing data in the post-SOX era from March 2003 to December 2016, this study examines the impact of these requirements, with a focus on the effect of ACFE on the main earnings manipulation tactics used to just meet or beat analyst expectations (JUSTMBE). Our study investigates the effects of overall ACFE and its components on three key earnings management tactics, namely, discretionary accruals, real activities management , and non-GAAP financial disclosures. We observe that firms with a higher level of ACFE, particularly accounting and finance expertise, exhibit a lower propensity to JUSTMBE. Furthermore, we posit that two upward earnings manipulations, accrual-based and real activities management, are significantly mitigated by ACFE through a complementary effect of its accounting and supervisory expertise components. However, we identify a clear strategic shift in which non-GAAP financial disclosures with unexpected exclusions become a popular alternative tactic for managers to JUSTMBE under the increasing presence of ACFE. This study provides empirical evidence with implications for regulators to consider more rigorous intervention and regulation on non-GAAP disclosures and to refine the requirement of audit committee financial experts with an emphasis on the complement of accounting and non-accounting financial expertise to effectively curtail earnings manipulation.
... This theory posits that management doesn't invariably act in the best interests of the company's shareholders, necessitating safeguards against management's self-interests [24,25,42]. Under the agency theory, the Board of Directors' role is to safeguard shareholders' interests, supervise management, and endorse strategies [56,20]. Recently, the agency theory has evolved into a broader viewpoint known as Stakeholder-agency theory. ...
... The bankyear observations in the sample are for all public and private listed banks on the National Stock Exchange in India. The variables for this study are constructed from the existing works in the literature (Hermalin & Weisbach, 1991;Yermack, 1996;Fernandez & Weinberg, 1997;Vafeas, 1999;Bhagat & Black, 2002;DeZoort et al., 2002;Anderson, 2004;Adams & Mehran, 2005;Caprio et al., 2007;Andres, 2008;Andres & Vallelado, 2008;Adams & Ferreira, 2008;Tarchouna et al., 2017;Ciftci et al., 2019). ...
The purpose of this study is to examine the effect of corporate governance mechanisms on bank performance in general and the effect of board-constituted committees on bank performance in particular. Primarily, two questions are addressed in the context of the banking sector of India. First, does corporate governance mechanisms reduce the quantum of non-performing assets (NPAs)? Second, does the internal committee affect bank performance? Hence, this paper determines whether independent directors strengthen corporate boards and whether committees affect bank performance. The panel data ordinary least square regression analysis is used for this study. We also use logistic regression models for various committees to find their relationship with bank performance and NPAs. Tobin’s Q is used as proxy for bank performance. Independent variables are board size (BSIZE), proportion of independent directors on the board (PERIND), number of board meetings per year (BMEET), size of the audit committee (AUC), and two measures of the bank business (asset size and loan), and one control variable is time. We use financial and corporate governance data from 2005 to 2018, the study finds that independent directors play a major role on the board. It finds a positive and significant relationship between board independence and bank performance. The performance also increases with the increase in board size but after a point, the curve declines forming and an inverted U-shaped curve is formed. The mandatory internal committees have a crucial role to play, which is demonstrated by their effect on the reduction of NPAs. The significance of a well-functioning board and internal committees in discharging their fiduciary duties is highlighted in this study. An internal committee comprising a majority of independent directors is found to positively affect the performance of banks. They can help managers disburse good-quality loans and keep a check on risk-laden ventures.
... Meeting frequency can indirectly signal the diligence of the board (Abbott et al., 2004). Diligence is regarded as one of the factors contributing to the effectiveness of audit committees (DeZoort et al., 2002). For the purpose of this study, an audit committee meeting is defined as the total number of meetings held by an audit committee within a year. ...
This study examines the effect of audit committee characteristics on tax aggressiveness of listed financial firms in Nigeria. The population comprises all the listed financial firms in Nigeria and filtering method was used to arrive at forty-three (43) sampled firms covering the periods of 2012 to 2021. The data were analysed using Pearson correlation matrix, Variance Inflation Factor, Doornik Hansen Normality Test, Heteroskedasticity test, Breusch-Pagan Lagrangian Multiplier Test, Hausman Specification Tests and Wald Test while hypotheses were tested using robust random effect (REM) regression model. The results show that audit committee financial expertise has a significant negative effects on tax aggressiveness of listed financial firms in Nigeria for the period under review. The results also show that audit committee diligence has an insignificant negative effects on tax aggressiveness of listed financial firms in Nigeria for the period under review. The study recommends that the audit committee meetings should be carried out regularly at least one (1) in every quarter to attend to some urgent issues that arise in the organization. This will increase the level of diligence of the audit committee members and subsequently reduce tax aggressive of quoted financial firms in Nigeria. The study also recommends that the number of the audit committee members with financial knowledge should be increased to two-third to enhance the level of diligence in their works and reduce the level of tax aggressiveness of quoted financial firms in Nigeria.
... The audit committee has many avenues to monitor and control management information asymmetric to ensure owners get the right information for decision-making (Allegrini & Greco, 2013). Audit committee AC) is recognized globally as a very important governance mechanism for ensuring the integrity of the financial reporting and audit process are enhanced (DeZoort et al., 2002;Cohen et al., 2008). An audit committee (AC) is a very important component of good corporate governance. ...
Audit committee (AC) perform a critical role in improving the internal as well as external operations of companies through establishing vigil mechanisms and addressing to the needs of various stakeholders. Likewise, ACs ensure that the responsibility towards society and environment is adhered properly and the ESG reporting quality is not compromised. Based on the sample of 225 public companies listed on the stock exchanges in India and employing regression analysis, the results indicate that the AC's characteristics such as size, independence, meeting frequency and financial expertise of the members of the AC have favourable influence on the ESG reporting. This indicates that AC improves the transparency, promotes accountability and fosters trusts among the stakeholders through effective ESG reports. This paper enriches the existing literature and helpful for the regulators and policymakers to promote formation of AC with large independence and membership.
Purpose: The purpose of this study is to investigate the impact of audit committee characteristics, namely independent members in the audit committee, a financial expert in the audit committee, frequency of meetings, and audit committee size on financial reporting quality proxies by qualified audit opinion, to shed light on the role of audit committee characteristics towards the financial reporting quality with audit quality as one of the control variables, particularly the appointment of Big 4 company. Design/Methodology/Approach: A sample of 292 observations from Saudi non-financial listed companies from 2019-2022 were collected from annual reports across four years and analyzed using panel data. To analyze the proposed hypothesis, the study employed multiple linear regression and logistic regression. Findings: The results indicate that the only audit committee characteristic statistically related to financial reporting quality measured by qualified audit opinion is the financial expert's number. There is also evidence that audit quality measured by audit company size (Big4) is positively related to the audit committee and financial reporting quality. Research Limitations/Implications: The study's main limitation is that a large sum of the data collected are traced back to the lockdown period. Therefore, the examined issues could change in the future due to the shift in priorities that the COVID-19 pandemic is determining. Practical Implications: The result will help accountancy professionals and governments as it highlights the relevance of qualified audit opinions to audit committees and enhances audit committees' characteristics and role in improving audit quality. The findings of this study contribute to the current audit quality and reporting literature.
This study delves into the impact of audit committee effectiveness on firm's cost of debt for family and non-family firms, drawing on the lens of agency theory and institutional theory. Through rigorous econometric analysis, this study uncovers that audit committee effectiveness does not directly influence cost of debt for full sample. However, control family significantly decreases cost of debt, aligning with agency theory's emphasis on monitoring mechanisms in mitigating agency conflicts. In addition, we find that audit committee characteristics such as size, independence and meeting frequency do not have a substantial impact in firm's cost of debt, challenging traditional agency theory assumptions. A comparative analysis between family and non-family firms highlights distinct relationships between audit committee independence and cost of debt, underscoring the nuanced interplay governance structure, family control, and cost of debt through the agency perspective.
Purpose
The aim of this study is to approach the way in which corporate governance influences the occurrence of financial fraud, as expressed by the M-Beneish score. In order to get further into the topic, we have first computed a corporate governance score based on the comply-explain statement and then selected a few elements that are part of the corporate governance reporting: equilibrium of board members (EQUIL), independence of board members (INDEP), selection of the board members (NOM), remuneration policy (REM), audit committee (AUDIT) and the proportion of female directors on boards (GenF). They were tested, one by one, using the financial fraud score to see the way in which they interact.
Design/methodology/approach
The study is conducted on a sample of 65 companies listed on the Bucharest Stock Exchange (BSE) for the 2016–2022 period. The data were processed using three-stage general least square [general least squares (GLS), with iteration, igls and option] with a common first-order panel-specific autocorrelation correction, so as to explain how a poor adoption of the corporate governance score and its elements has a negative implication for the M-Beneish score, controlling for the auditor opinion, type of auditing company and if the company is privately owned.
Findings
The results support most of our research hypothesis, revealing that a poor adoption of the corporate governance score and its components – AUDIT, EQUIL, INDEP and GenF – negatively influences the M-Beneish score, i.e. a low corporate governance score will lead to an increase in financial fraud. This is an encouraging aspect, for an improved adoption of the corporate governance principles reduces the occurrence of financial fraud.
Research limitations/implications
This is a study that concerns the relationship between corporate governance and financial fraud for the case study for Romania.
Practical implications
The study highlights the importance of adopting the corporate governance code applied to the Romanian business environment. By measuring the presence of financial fraud appearance through the M-Beneish score, we have managed to outline the negative relationship between the two components. Thus, it is an important aspect of which companies should take account, so they will have long-term benefits and ensure the continuity of the business.
Social implications
The policy implications of this project are for policymakers, so that they will understand how a good corporate governance mechanism will enhance high-performing businesses. Different aspects regarding corporate governance were validated and are in the process of being validated. Managers can extract and try to understand and apply the good characteristics of corporate governance for the well-being of their companies. At a broader level, the macroeconomic environment will increase its own well-being while encouraging market players to enhance qualitative corporate governance reporting. There is no doubt that corporate governance has a positive impact on businesses.
Originality/value
The study highlights the importance of adopting the corporate governance code as applied to the Romanian business environment. By measuring the occurrence of financial fraud using the M-Beneish score, we have managed to outline the negative relationship between the two components. Therefore, this is an important aspect that companies should take into account in order to have long-term benefits and ensure the continuity of their business.
Hiring an independent auditor is a fundamental goal that companies pursue to ensure the integrity of financial reporting. In developing countries, the literature focuses on examining factors influencing auditor change (Saaydah, 2021), with little interest in understanding the mechanism of external auditor selection (EAS) by audit committee members (ACMs). This study extends the literature by providing an experimental investigation of the main and interactive weights of factors influencing ACMs’ decisions regarding EAS. Using a mixed approach, the study found that prior knowledge of the audit firm had the greatest impact on ACMs’ decisions, in addition to revealing some interactions between the variables. The study provides valuable insights into how the EAS process can be revitalized, prioritized and institutionalized. It also gives auditors a better picture of how to craft a request-for-proposal to enhance their competitiveness. The insights gained also provide 1) a better understanding of the factors that drive EAS and how they interact in shaping the judgments of ACMs; 2) highlighting the importance of transparency in EAS by disclosing the selection mechanism in the annual report; 3) providing a set of recommendations on how to enhance the independence of the audit committee when deciding to nominate auditors.
This job aims to confirm the role of audit committee (AC) attributes in curbing earnings management (EM) (discretionary accruals, DA). More significantly, it seeks to fully explore the moderating impact of audit quality (AQ) (Big4 companies) on the association of AC attributes with DA. The research subject is data from insurance businesses listed on the Saudi Stock Exchange (Tadawul) over an eight-year period (2014–2021). The data analyses from this period show that AC size, commitment, meetings, and independence negatively and significantly influence DA. However, AC experience was not linked to DA. The impact of moderating variables was also explored. AQ has a significant and negative moderating influence on the association of audit committee size (ACZ) with DA. Furthermore, the regression outcomes confirm that AQ does not affect the association of DA with other AC attributes. These findings can help investors and shareholders evaluate the trustworthiness and quality of annual reporting when deciding whether to invest in companies listed on Tadawul. They can also help Saudi policymakers develop and strengthen laws and regulations to assist and encourage firms’ production of reliable, quality financial statements.
Tujuan dari penelitian ini adalah untuk menguji pengaruh efektivitas komite audit terhadap reputasi perusahaan. Lebih lanjut, penelitian ini juga menguji Enterprise Risk Management (ERM) dalam memoderasi hubungan efektivitas komite audit terhadap reputasi perusahaan. Sampel dalam penelitian ini adalah perusahaan manufaktur yang terdaftar di Bursa Efek Indonesia periode 2018-2022 dan mempunyai index CII selama rentang waktu tersebut. Hasil penelitian ini menunjukkan bahwa komite audit tidak mempunyai pengaruh terhadap reputasi perusahaan. Enterprise Risk Management (ERM) tidak mempunyai pengaruh moderator terhadap hubungan efektivitas komite audit terhadap reputasi perusahaan.
This study investigates the influence of audit committee attributes on the corporate environmental disclosure using listed non-financial firms in Nigeria as case study. The population of the study consists of all non-financial listed firms on the Nigerian Exchange Group (formerly NSE). Using purposive sampling techniques, the study selected a total 70 listed non-financial firms having required information necessary for the study between 2011 and 2020. The study employed fixed effect and feasible generalized least square (FGLS) panel regression technique. The fixed effect of FGLS regression analysis indicates that while audit committee independent and audit committee gender diversity recorded significant positive influence on the environmental disclosure among Nigerian listed non-financial firms, the impact of audit committee size and audit committee meetings were negligible. Based on results, it is not the size of the committee nor the number of their meetings that matter for the disclosure of environmental information but the composition of the committee in terms of female and independent members representation. In conclusion, the study found evidence in support of the critical role of audit committee characteristics in environmental disclosure practices among Nigerian listed non-financial firms. Hence, it is recommended that efforts should be made to encourage higher composition of female and independent members on the audit committee.
The study aims to assess the effectiveness of information technology (IT) governance in local government by examining the audit committee’s role and capabilities relating to IT governance. This study is prompted by a local government IT infrastructure failing to adequately support service delivery to communities due to poor governance skills and knowledge of audit committees. The risk of mismanagement of resources is therefore increased. The study employs a quantitative research approach and a descriptive research design. A questionnaire survey was used to collect data from the audit committee members, internal auditors, managers and Chief Audit Executives and Council and municipal management. The researcher used descriptive and inferential statistics, Stata/SE version 16 software, descriptive analysis, chi-square test, effect factor analysis and exploratory factor analysis to measure the relationship between two-factor variables. Kaizer criterion was accepted as the extraction method, while the Cronbach alpha coefficient was used to determine the internal consistency of the identified factors. The study reveals that audit committees are ineffective in executing their IT governance activities. Furthermore, there are areas of concern in IT assurance audits. The internal audit function lacks the skills and technical capacity to provide IT assurance services and therefore not add sufficient value to the municipality. The study concludes that there is a significant statistical correlation (P < 0.001) between poor IT governance and audit committee skills and expertise. The study recommends that the recruitment of audit committee members should consider their experience in IT governance to ensure that auditors are well-equipped to review IT governance assurance effectively. Also, the importance of IT assurance services by competent, skilled internal auditors was expressed. The study contributes to governance literature by providing empirical evidence on audit committees’ IT governance and oversight effectiveness, and also emphasises the need to assess IT engagements by internal auditors. Academic researchers and the National School of Government can use the findings of the study as justification for on minimum required skills and capacity building for audit committee members.
Non-governmental organizations are faced with sustainability challenges which are attributed to difficulties in the design, monitoring and implementation of project financing strategies which impact negatively on overall sustainability. The declining state of foreign funding imposes a strain to an already constraining situation. The study sought to determine the influence of risk based internal audit on financial sustainability of non-governmental organization. The study specifically looked into the influence of Internal Auditors Competency on financial sustainability. A sample frame of 79 NGOs was used. A sample of 115 officials was selected. Data was collected using questionnaires constructed on a likert scale and analyzed using statistical package for social sciences (SPSS) IBM software. Data was analyzed using descriptive statistics and inferential statistics presented in tables. The study established that auditor competency had significant relationships with financial sustainability. Regression analysis showed that auditors' competence significantly influence financial sustainability. The study concluded that auditor competency had significant influence on financial sustainability of non-governmental organization in Nakuru County. The study recommended that the organizations should ensure that they recruit competent auditors with sufficient knowledge and skills in auditing to ensure that the audit process gives an accurate position of the financial standing of the organization.
The purpose for this paper is to recognize female presence in ACs and experience female CFO as working in ACs as a chief in Audit firms, impact of the female with Audit fee and non-audit fee on audit quality, just as their relationship with financial reports of the non-financial sector of Pakistan. Using a combination of publicly available and manually collected data, using OLS regression, Fixed Effects Regression and Random effects and the Pakistan non-financial industries subsequently 2015 to 2019.Results show that this investigation tracks down an affirmative relationship between female directors on ACs and AQ. More, it proves that this affiliation is reliant upon the community bookkeeping aptitude of female ACs individuals and female presence in the ACs. This research adds to AQ literature and to the exploration distinguishing attributes driving female directors' checking. In addition, it adds to the clashing proof identified with female accounting specialists on ACs and accounting reports observing, that the outcomes propose that the blended proof might be determined by the scientists' inability to isolate economic ability. Likewise adds to the discussion on economic or non-economic mastery improves economic detailing observing. Additionally, it applies the hypothetical structure of uniting RDT (resource dependence theory) and AT (agency theory) to women directors on ACs. Moreover, the investigation upholds strategy producers' endeavors towards more noteworthy presence of Women directors, it suggests this they ought to likewise deliberate the public bookkeeping aptitude of women directors.
The purpose of this research is to investigate the effect of board
diligence on the audit committee’s effectiveness throughout
the COVID-19 pandemic. Using a sample of the top 164 non-financial French companies listed on CAC All-Tradable during 2020.
The paper employs the ordinary least squares method to look at
the relation between audit committee effectiveness score and board activity during the health crisis. The results indicate that board activity positively affects the effectiveness of the audit committee during the COVID-19 crisis. We find a significant positive association at the 1 percent level between company size and audit committee effectiveness scores related to companies in the medical sector. However, factors such as firm age and leverage had no impact on effectiveness. We recall that this line of research is very little explored in the world and that our study is the first to have addressed this issue in the French context. This result cements the notion to professionals, managers, and stakeholders who deem that the board of directors is a pillar of success and resilience, as it is considered the most relevant governance mechanism in critical situations.
We conducted 31 interviews with audit committee (AC) members, chief executive officers (CEOs), and chief audit executives (CAEs) to investigate the role of the internal audit function (IAF) in environmental, social, and governance (ESG) processes and related risks. We find that multiple possible combinations of the maturity of companies' ESG practices and CAE's perception of the IAF stakeholders' salience drive the type of IAF's involvement in ESG. In ESG‐mature companies with more salient ACs, the IAF provides assurance over ESG practices, ESG reporting, and reputation risks related to ESG, and it focuses on the governance dimension of ESG. When the CEO is perceived as more salient, the type of IAF's involvement includes both assurance over ESG controls in the supply chain and consulting on ESG activities. In contrast, in low ESG maturity companies with more salient AC, the IAF's role is limited to providing assurance over internal controls established to comply with environmental, health, and safety legal requirements, and prevent managers' unethical behavior. Finally, we discuss the implications for the IAF's ability to add value to the organization. We contribute to the underexplored research area of IAF's involvement in ESG practices and related risk.
This study aims to examine the effect of company size, profitability, and audit committee characteristics as indicated by audit committee size, independent audit committee, and the frequency of audit committee meetings on audit report lag in Indonesian Banking Companies in 2017 – 2021. The research method used was quantitative research using multiple linear regression. The sampling technique used was purposive sampling, with a total sample of 210. The results showed that company size has a negative effect on audit report lag, profitability has no effect on audit report lag, audit committee size has no effect on audit report lag, independent audit committee has no effect on audit report lag, and the frequency of audit committee meeting has a negative effect on audit report lag. Based on this research, it is known that there are still many banking companies that issue audited financial statements not on a timely basis. This research is expected to contribute to the importance of completing audited financial statements in a timely manner so that the information is relevant for decision-making. Keywords: company size, profitability, audit committee, audit report lag, banking Penelitian ini bertujuan untuk menguji pengaruh ukuran perusahaan, profitabilitas, dan karakteristik komite audit yang ditunjukkan dengan ukuran komite audit, komite audit independen, dan frekuensi kehadiran rapat komite audit terhadap audit report lag pada perusahaan perbankan di Indonesia tahun 2017-2021. Metode penelitian yang digunakan yaitu penelitian kuantitatif menggunakan regresi linear berganda. Teknik pengambilan sampel menggunakan metode purposive sampling dengan jumlah total sampel sebanyak 210. Hasil penelitian menunjukkan bahwa ukuran perusahaan berpengaruh negatif terhadap audit report lag, profitabilitas tidak berpengaruh terhadap audit report lag, ukuran komite audit tidak berpengaruh terhadap audit report lag, komite audit independen tidak berpengaruh terhadap audit report lag, dan frekuensi kehadiran rapat komite audit berpengaruh negatif terhadap audit report lag. Berdasarkan penelitian ini, diketahui bahwa masih terdapat banyak perusahaan perbankan yang menerbitkan laporan keuangan secara tidak tepat waktu. Penelitian ini diharapkan dapat memberikan kontribusi terkait pentingnya penyelesaian laporan keuangan auditan secara tepat waktu supaya dapat menjadi informasi yang relevan dalam pengambilan keputusan. Kata kunci: ukuran perusahaan, profitabilitas, komite audit, audit report lag, perbankan
This research work investigated the drivers of financial disclosure compliance (FDC) of listed companies using Nigeria as an emerging economy. The quantitative data of the study was obtained through extraction method from the audited financial statement of the listed companies in the Nigerian healthcare sector. Specifically, ex-post facto and healthcare companies were employed as the research design and population of the study respectively. A sample size of 10 listed companies was employed with the aid of census as the technique of sampling. The research has indeed, employed the random effect regression as the technique for analysis of data. The outcome of the research study indicates that all the explanatory variables (Drivers); AA, AC, AS and AE have statistical significant influence on FDC of listed companies from the healthcare sector in emerging economies especially Nigeria. What is left to be done therefore, is for the regulatory stakeholders in emerging economies to ensure that a good and reasonable proportion of auditor composition should be instituted and thus, should be practically and efficiently acclimatized with financial disclosure compliance in all its ramifications.
The role of audit governance mechanisms as part of the corporate governance architecture has been promoted to ensure the integrity of the financial reporting process. In order to get insights on their effectiveness, this study investigates the effects of the audit governance mechanism, specifically audit committee, internal audit function and external audit quality on earnings management in Malaysian government-linked companies. Using a cross-sectional variation of the modified Jones Model (1995) to estimate discretionary accruals, this study examined 38 GLCs from 2009–2018, which consisted of 340 firm-year pair observations. Panel data regression analysis was carried out using the generalised least square method to analyse the effect of audit governance mechanisms on earnings management. The findings suggest that lower likelihood of earnings management is associated with the internal audit function. Further analysis on the proxy of internal audit measures suggests that in-house internal audit function is negatively associated with earnings management. This research would provide insights for regulators and management to strengthen in-house internal audit function in order to mitigate earnings management in Malaysian government-linked companies.
This study empirically investigated the relationship between corporate governance practices and financial performance of quoted insurance firms in Nigeria. Corporate governance practices were proxied by audit board composition, board size and audit committee size while financial performance was proxied by profit after tax. The population of the study consists of 23 quoted insurance firms in Nigeria. The study adopts judgmental sampling techniques to select 15 quoted insurance firms in Nigeria. Secondary data were obtained from audited annual financial reports of quoted insurance firms from 2010-2022. The study adopts ordinary least square regression to test hypotheses formulated for the study with the aid of Eviews 10 econometrics statistical software. The findings show that audit committee size had positive and insignificant impact on profit after taxof quoted insurance firms in Nigeria. Empirical evidence shows that board composition had positive and significant impact on profit after tax of quoted insurance firms in Nigeria. Empirical evidence indicates that board size had negative and insignificant impact on profit after tax of quoted insurance firms in Nigeria. Empirical evidence of the overall model suggest that audit committee size, board composition and board size jointly had positive and significant impact on profit after tax of quoted insurance firms in Nigeria. The study concludes that audit committee size, board composition and board size improved financial performance of quoted insurance firms in Nigeria. Thus the study recommends among others that corporate board structures and audit committee should be based on professional qualification, skills, experience and competency and ensures accountability, transparency and effective internal control assessment to improve financial performance. Board size with large proportion of non executive members will boost financial performance, because large board sizes that are independent are more
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