Effect of audit and compensation committee membership overlap on audit fees

2017 ◽  
Vol 25 (1) ◽  
pp. 34-57 ◽  
Author(s):  
Rachana Kalelkar
Keyword(s):  
Audit Committee ◽  
Committee Member ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Audit Fees ◽  
Audit Pricing ◽  
Audit Risk ◽  
Content Type ◽  
Compensation Committee ◽  
Committee Membership

Purpose Recent studies document that approximately two-thirds of sample firms have at least one audit committee member serving on their compensation committee (Liao and Hsu, 2013). Prior studies on overlap membership document that presence of audit committee members on compensation committee affects the reporting quality. Since auditors’ audit risk is affected by reporting quality. The purpose of this paper is to examine how the auditors perceive the overlap of audit and compensation committee members when pricing audit fees. Design/methodology/approach The author use a sample from 2007 to 2012 and run an OLS regression. Findings The author find a negative association between overlap membership and audit fees. The results are robust after controlling for selection bias, alternate measurement of overlap membership, and an alternate pre- and post-overlap membership test. Additional tests show that the negative relationship between overlap membership and audit fees is explained by lower audit risk and not by lower brand premium of non-Big4 auditors and that the benefit of overlapping membership increases when the audit committee size is large. Practical implications The findings suggest that firms with large audit committee can improve their reporting and lower their audit fees by having audit committee members on compensation committee. Originality/value The findings contribute to the literature on the consequences of overlap membership and on the ongoing debate about the extent that common membership enhances audit committee monitoring. It also adds to the limited literature on audit committee and audit pricing.

Audit committee attributes and cosmetic accounting in Nigeria

2019 ◽  
Vol 35 (2) ◽  
pp. 177-206
Author(s):  
Hussaini Bala ◽  
Noor Afza Amran ◽  
Hasnah Shaari
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Accounting ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Accounting Expertise

Purpose The literature on the influence of audit committees (ACs) and cosmetic accounting (CSA) is scarce. This paper aims to examine the influence of AC attributes on CSA and how this relationship is moderated by the audit price (AUPR). Design/methodology/approach The study used pooled logistic regressions to analyse 624 firm-year observations of listed companies in Nigeria from 2008 to 2016. Findings The results show that AC financial accounting expertise, AC legal expertise and female AC membership were negatively related to CSA. The negative relationship is highly pronounced when a firm incurs higher audit fees. Results for the robustness checks were similar, even with changes to the measurements of dependent and independent variables and alternative estimation. Practical implications This study can benefit policymakers and regulators, enabling them to better appreciate the importance of AC attributes and AUPR in curtailing artificial manipulation and enhancing financial reporting quality. Social implications This study can benefit policymakers and regulators, enabling them to better appreciate the importance of AC attributes and AUPR in curtailing artificial manipulation and enhancing financial reporting quality. Originality/value The findings provide an initial insight into the moderating effect of AUPR on the relationship between AC attributes and CSA.

CEO Financial Background and Audit Pricing

2016 ◽  
Vol 30 (3) ◽  
pp. 325-339 ◽  
Author(s):  
Rachana Kalelkar ◽  
Sarfraz Khan
Keyword(s):  
Financial Reporting ◽  
Chief Executive Officers ◽  
Work Experience ◽  
Audit Committee ◽  
Reporting Quality ◽  
Chief Executive ◽  
Audit Fees ◽  
Fixed Effect Model ◽  
Audit Pricing ◽  
Advantages And Disadvantages

SYNOPSIS Accounting scholars theorize that audit price is a function of a client's audit and business risk. Existing research finds that the functional expertise of Chief Executive Officers (CEOs) in finance improves financial reporting quality (Matsunaga, Wang, and Yeung 2013), increases profitability, and reduces the likelihood of firm failure (Custodio and Metzger 2014). These factors suggest that auditors' engagement risk decreases when incumbent CEOs possess financial expertise, raising the likelihood that auditors will charge these firms lower fees. In this study, we examine whether CEOs' work experience in accounting- and finance-related jobs affects audit fees. Using a panel of U.S. firms between 2004 and 2013, we find that firms that have a financial expert CEO pay lower audit fees. Our results are robust to various specifications, including firm-fixed effect model and specifications that control for other CEO- and Chief Financial Officer (CFO)-specific and audit committee characteristics. Our findings thus add to the literature on the advantages and disadvantages of a functional background of top managers and how this background can create value for a firm through savings in audit fees.

The impact of demographic characteristics of CEOs and directors on audit fees and audit delay

2015 ◽  
Vol 30 (8/9) ◽  
pp. 963-997 ◽  
Author(s):  
Maretno Agus Harjoto ◽  
Indrarini Laksmana ◽  
Robert Lee
Keyword(s):  
Ethnic Minority ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Audit Fees ◽  
Content Type ◽  
Top Executives ◽  
The Us ◽  
Female Ceos ◽  
The Impact

Purpose – The purpose of this study is to examine the impact of gender and ethnicity of CEO and audit committee members (directors) on audit fees and audit delay in the US firms. Design/methodology/approach – Audit-related corporate governance literature has extensively examined the determinants of audit fees and audit delay by focusing on board characteristics, specifically board independence, diligence and expertise. The authors provide empirical evidence that gender and ethnicity diversity in corporate leadership and boardrooms influence a firm’s audit fees and audit delay. Findings – This study finds that firms with female and ethnic minority CEOs pay significantly higher audit fees than those with male Caucasian CEOs. The authors also find that firms with a higher percentage of ethnic minority directors on their audit committee pay significantly higher audit fees. Further, the authors find that firms with female CEOs have shorter audit delay than firms with male CEOs and firms with a higher percentage of female and ethnic minority directors on their audit committee are associated with shorter audit delay. Results indicate that female CEOs and both female and ethnic minority directors are sensitive to the market pressure to avoid audit delay. Research limitations/implications – The results suggest that gender and ethnic diversity could improve audit quality and the firms’ overall financial reporting quality. Practical implications – This study provides insights to regulators and policy-makers interested in increasing diversity within a firm’s board and top executives. Recently, the US Securities and Exchange Commission (SEC) and the European Commission have been pressing publicly traded companies to improve diversity among their directors. This study provides evidence and perspective on how diversity can enhance financial reporting quality measured by audit fees and audit delay. Originality/value – Previous studies have not given much attention on the impact of racial ethnicity in addition to gender characteristics of top executives and audit committee directors on audit fees and audit delay.

Audit committee expertise in large European firms

2020 ◽  
Vol 35 (9) ◽  
pp. 1313-1341
Author(s):  
César Zarza Herranz ◽  
Felix Lopez-Iturriaga ◽  
Nuria Reguera-Alvarado
Keyword(s):  
Audit Committee ◽  
Design Methodology ◽  
Current Knowledge ◽  
Committee Member ◽  
Audit Fees ◽  
Continuous Variable ◽  
Full Time ◽  
Audit Process ◽  
Content Type ◽  
Auditor Rotation

Purpose This paper aims to study how audit committee member expertise is related to certain features of the committee and to the audit process. Design/methodology/approach Based on information from 2,477 directors from 296 firms in eight European countries between 2005 and 2014, this study measures average audit committee expertise using a continuous variable, which combines education-based and experience-based expertise. Different measures of the audit process are then regressed against this and other control variables. Findings Average committee expertise has increased in recent years. Education-based and experience-based expertise seem to be complementary. Results also show that committees with greater expertise meet more frequently, have fewer directors with full-time dedication and pay lower audit fees. There is no link to changes in the external firm audit, which may be due to mandatory auditor rotation. Originality/value The paper provides a comprehensive metric of audit committee expertise that includes directors’ academic background, professional experience and qualifications. In addition, this study expands current knowledge concerning whether and how committee expertise affects the audit process.

Factors influencing external audit fees of companies listed on Dubai Financial Market

2016 ◽  
Vol 9 (3) ◽  
pp. 346-363 ◽  
Author(s):  
Kamal Naser ◽  
Yousef Mohammad Hassan
Keyword(s):  
Financial Market ◽  
Audit Committee ◽  
Negative Relationship ◽  
Audit Fees ◽  
Arab Countries ◽  
Annual Reports ◽  
External Audit ◽  
Content Type ◽  
Middle East Countries ◽  
The Impact

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.

Financial reporting quality, audit fees and risk committees

2020 ◽  
Vol 28 (3) ◽  
pp. 423-444 ◽  
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Ummya Salma ◽  
Jamal Roudaki ◽  
Siata Tavite
Keyword(s):  
Financial Reporting ◽  
Financial Risk ◽  
Investment Decision ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Audit Pricing ◽  
Content Type ◽  
The Impact ◽  
Matching Techniques

PurposeThe purpose of this paper is to examine the association between the existence of a risk committee (RC) in a firm and financial reporting quality. We also investigate whether having an RC has an effect on audit pricing. We argue that the existence of an RC in a firm contributes to higher financial reporting quality and this, eventually, affects audit pricing.Design/methodology/approachThis study uses two different proxies for RC measures and investigates the impact on financial reporting quality and audit pricing. Multivariate regression analysis and propensity score matching techniques are both applied to data from the Australian Stock Exchange's listed companies for the years 2001–2013.FindingsThe results indicate that the existence of an RC reduces the discretionary accruals; this means the financial reporting quality improves when RCs are in operation. Our findings also indicate that the existence of an RC increases audit fees.Practical implicationsThe findings from this study will be beneficial to the regulatory authorities responsible for improving the compliance of corporate governance (CG). An RC can serve as a risk-mitigating tool in the investment decision-making process. Finally, the results are beneficial for the development of best practices in CG by promoting the existence of an RC.Originality/valueThis study goes beyond the traditional focus on CG as we use the existence of an RC as an indicator of better governance practices to mitigate financial and non-financial risk factors. To the best of our knowledge, this paper is among the first to investigate the consequences for firms operating with RCs. This issue has implications for investors, auditors, directors and regulators.

Evidence on the relation between audit committee financial expertise and internal audit function effectiveness

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila
Keyword(s):  
Financial Reporting ◽  
Work Experience ◽  
Audit Committee ◽  
Committee Member ◽  
Internal Audit ◽  
Reporting Quality ◽  
Certified Public Accountant ◽  
Content Type ◽  
Internal Audit Function ◽  
Financial Expertise

PurposeThe purpose of this paper aims to investigate whether the source of audit committee accounting expertise influences the internal audit function (IAF) effectiveness in the Tunisian setting.Design/methodology/approachIn the analysis, the authors conduct a survey of chief internal auditors from Tunisian listed companies. Then, a multivariate regression analysis is performed in order to analyze the relationship between audit committee financial expertise and IAF effectiveness.FindingsThe findings of the present study show that audit committee accounting financial expertise is most likely to be positively associated with the implementation of internal audit report recommendations. The authors also find that only financial expertise gained from accounting education and experience (e.g. an audit committee member with experience as a certified public accountant, auditor, chief financial officer or chief accounting officer) is associated with a stronger implementation of IAF recommendations, but not financial expertise gained from work experience in finance positions.Practical implicationsThese results may have implications for regulatory bodies. They can provide a better understanding of the role of the audit committee expertise in monitoring internal audit processes. The major contribution of this study is that the audit committee's oversight role is strengthened if the committee members have accounting and auditing expertise.Originality/valueThe study extends prior literature by providing evidence that the source of audit committee accounting financial expertise enhances internal audit effectiveness beyond the outcomes it has on financial reporting quality. The study also contributes to the ongoing debate in the corporate governance literature concerning the definition of the financial expertise of audit committee members.

The effect of directors’ and officers’ insurance on audit fees: the case of an emerging economy

2017 ◽  
Vol 25 (2) ◽  
pp. 174-190 ◽  
Author(s):  
Kuei-Fu Li ◽  
Yi-Ping Liao
Keyword(s):  
Emerging Market ◽  
Insurance Coverage ◽  
Audit Fees ◽  
Emerging Economy ◽  
Litigation Risk ◽  
Audit Pricing ◽  
Audit Risk ◽  
Content Type ◽  
Financial Misstatement ◽  
Directors And Officers

Purpose The purpose of this paper is to examine the role of D&O insurance in audit pricing in Taiwan, an emerging market in which auditors face negligible litigation risk and intense competition. Design/methodology/approach It examines the association between audit fees and D&O insurance coverage. Findings Results indicate that audit fees are higher for clients with higher D&O coverage after controlling for other determinants. Further analysis shows that auditors charge additional audit fees for clients whose insurer is foreign owned. Originality/value Overall, the study provides evidence that the induction of financial misstatement risks by D&O insurance is one of the contributing audit risk factors in an emerging economy context.

Politically Connected Boards and Audit Pricing: U.S. Evidence

2021 ◽  
Author(s):  
Keval Amin ◽  
Chansog Francis Kim ◽  
Zhifeng Yang ◽  
FeiTeng Ye
Keyword(s):  
Financial Reporting ◽  
Fixed Effects ◽  
Reporting Quality ◽  
Audit Fees ◽  
Political Connections ◽  
Fixed Effects Model ◽  
Audit Pricing ◽  
Audit Risk ◽  
Distressed Firms ◽  
The Impact

This study investigates the impact of political connections, as measured by having directors that previously held political positions, on the pricing of audits. We document that auditors charge higher fees to politically connected firms than to similar non-connected firms. Our findings are robust to a battery of additional analyses including (1) propensity score matching, (2) entropy balancing, (3) changes analysis, and (4) a fixed effects model with transaction-based measures of political connections (i.e., campaign contributions and lobbying expenditures) in the model. The effect of political connections on audit fees is mitigated by independent monitoring. Moreover, the main effect is stronger in firms with more complicated operational structures and higher litigation risk, but weaker for distressed firms. Although our findings suggest that auditors exert greater effort at politically connected clients, we show that connected clients report significantly higher discretionary accruals, consistent with auditors' incremental effort being insufficient to fully offset the audit risk inherent in these engagements. Collectively, our study sheds light on how auditors perceive political connections and their impact on financial reporting quality.

Overlapping membership on audit and compensation committees, equity holdings of overlapping members and audit outcomes

2018 ◽  
Vol 31 (4) ◽  
pp. 509-530 ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan
Keyword(s):  
Audit Committee ◽  
Good Governance ◽  
Audit Fees ◽  
Content Type ◽  
Compensation Committee ◽  
External Auditors ◽  
Audit Opinions ◽  
The Impact ◽  
Compensation Committees ◽  
Equity Holdings

PurposeThis paper aims to examine the question of whether external auditors incorporate equity holdings by overlapping audit committee members as a priced governance factor and tests whether this attribute, as a mechanism for ensuring good governance, affects the propensity for external auditors to issue modified audit opinions.Design/methodology/approachOverlapping membership in this context refers to the arrangement where at least one audit committee member also sits on the compensation committee. Both ordinarily least square and logistic regression are used to capture the impact of overlapping committee members and equity holding of those overlapping committee members.FindingsUsing archival data from Australian Stock Exchange listed companies, the authors find support for the beneficial effect of having overlapping audit committee members with equity holdings. The authors also find that auditor propensity to issue modified audit opinions is lower for firms with equity holdings by overlapping audit committee members.Practical implicationsThe finding has practical implication to the investors and regulators as overlapping audit committee members with equity holdings may provide especially effective oversight by monitoring opportunistic accounting policy choices for maximizing compensation pay. To the extent that this occurs, audit risk will decrease, requiring less audit effort and lower audit fees than would otherwise be necessary. Similarly, such oversight is likely to make financial reporting more credible and will reduce the possibility of receiving modified audit opinions by reporting organizations.Originality/valueBoth audit and compensation committees are equally important in modern organizations. While both of the committee have distinctive responsibilities, questions remain on the desirability of overlapping audit committee. Also, this is the first study to the authors’ knowledge that incorporates overlapping membership on audit and compensation committee as an important component of auditor risk perception which regards in pricing the audit fees.

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