Quality Determinants of Independent Audits of Banks

Since DeAngelo's study (1981) on audit quality, the latter has been a topic well discussed in the international accounting literature; however, there is little evidence about audit quality in the financial market. In Brazil, studies on audit quality began only in the 2000s, although without a specific focus on banks. The purpose of this study was to identify the quality determinants of audit work in Brazilian banking institutions. Using the practice of earnings management as a proxy for audit quality - more specifically, the discretionary accruals related to the process of the constitution of the Loan Loss Provision (LLP) - tests were performed based on the quarterly information of commercial and multipleservice banks and savings banks from 2001 to 2012. Empirical tests have shown that the quality of audit work has several types of relationships as follows: negative with the client importance level for the auditor; negative with the works after the sixth year of the contract; positive with the establishment of the Audit Committee by the banks; positive with the judgment of punitive administrative proceedings against independent auditors; and positive with the level of rigor of the regulatory environment. Of the tested hypotheses, three were not confirmed empirically. The first hypothesis predicted an association between audit quality and the auditor degree of specialization in the banking industry. The second hypothesis predicted that audit quality would be negatively correlated with the degree of concentration of audit activity within the National Financial System (Sistema Financeiro Nacional - SFN). The third hypothesis predicted that audit quality would be lower when the auditorclient relationship is of a short term. The results of the study contribute to the debate concerning the role of auditors in the transparency and solidity of the financial system, including their role as a complementary or auxiliary supervisor.

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Do corporate governance practices restrain earnings management in banking industry? Lessons from India

Journal of Financial Reporting and Accounting ◽

10.1108/jfra-02-2021-0060 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Deepa Mangala ◽

Neha Singla ◽

Neha Singla

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Board Of Directors ◽

Audit Committee ◽

Least Square ◽

Loan Loss ◽

Content Type ◽

Governance Practices ◽

Indian Banks

Purpose This study aims to investigate the role of corporate governance practices in restraining earnings management in Indian commercial banks. Design/methodology/approach Estimation of earnings management is based on discretionary loan loss provision and discretionary realised security gains and losses using Beatty et al. (2002) model. The effect of corporate governance on earnings management is examined by performing two-way least square dummy variable regression. Data for a period of five years (2016–2020) is collected from the Centre for Monitoring Indian Economy ProwessIQ database, Reserve Bank of India website, annual report of banks, National Stock Exchange and bank’s website. Findings Regression results exhibit that number of board committees, size and independence of audit committee and joint audit are significantly effective in curbing earnings management. Other board-related variables (size, independence, meetings and diligence) and audit committee variables (meetings and diligence) are not effective in restraining earnings management in Indian banks. Practical implications The findings may prove to be helpful to regulators, board of directors and investors. It shows the weak area of corporate governance in India that is lack of autonomy to independent directors, which needs regulators attention and it also suggests that the number of independent auditors should be adequate for audit purposes. The board of directors must ensure the formulation of an adequate number of committees, which perform their own super specialised functions. This study brings an alarm to investors not to rely on reported earnings alone as they may be manipulated. Originality/value This paper substantiates the scant literature on the role of corporate governance practices in restraining earnings management in banks of emerging markets and to the best of the authors’ knowledge impact of joint audits on earnings management is previously unexplored in Indian banks, which are examined in this study.

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Audit Committee and Discretionary Loan Loss Provisions in Tunisian Commercial Banks

International Journal of Business and Management ◽

10.5539/ijbm.v13n3p169 ◽

2018 ◽

Vol 13 (3) ◽

pp. 169

Author(s):

Amina Zgarni ◽

Hassouna Fadhila ◽

Moez El Gaied

Keyword(s):

Earnings Management ◽

Commercial Banks ◽

Regression Models ◽

Audit Committee ◽

Standard Errors ◽

Loan Loss ◽

Positive Effects ◽

Loan Loss Provisions ◽

Effective Role

The purpose of this paper is to study the effect of the audit committee (presence, expertise, independence, size and activity) on earnings management of banks. We selected a sample of ten Tunisian commercial banks examined over the 2001 to 2014 period. The regression models are estimated using the “Panel Corrected Standard Errors” method of Beck and Katz (1995). Our empirical results highlight the effective role of the audit committee's expertise in mitigating discretionary practices. However, the number of meetings, which is less than the standard required by regulatory authorities, does not have a significant disciplinary effect on discretionary loan loss provisions. Results also report that Audit committee’s independence and size have positive effects on discretionary loan loss provisions in our sample.

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The Effect of Audit Committee Characteristics on Audit Quality: The Moderating Role of Internal Audit Function

Journal of Governance and Integrity ◽

10.15282/jgi.3.2.2020.5309 ◽

2020 ◽

Vol 3 (2) ◽

Author(s):

Josephine Kuan Pei See ◽

Anwar Allah Pitchay ◽

Yuvaraj Ganesan ◽

Hasnah Haron ◽

Ratih Hendayani

Keyword(s):

Structural Equation ◽

Audit Committee ◽

Audit Quality ◽

Internal Audit ◽

Secondary Data ◽

Listed Companies ◽

Internal Audit Function ◽

The Relationship ◽

Moderating Role

The purposes of study are to examine the effect of audit committee characteristics namely gender, frequency of meetings, independence member in audit committee and audit committee size on audit quality and the moderating role of internal audit function in the relationship between audit committee characteristics and audit quality. The objective is to contribute to the new evidence on the role of audit committee characteristics plays towards the audit quality with internal audit function as moderator. This research applied a quantitative approach and secondary data as the main source of information for analysis. Stratified random sampling techniques are being used in this study. Further, the structural equation modelling (SEM) approach via SmartPLS was utilized to achieve the research purpose by evaluating the data collected from 250 public listed companies in Malaysia. The results reveal that only three of the audit committee characteristics, namely presence of female members in the audit committee, frequency of meetings and independence of directors, are positively influencing the audit quality for listed companies in Malaysia. Surprisingly, this study also found that internal audit function did not play the moderating effect in the relationship between audit committee characteristics and audit quality. The findings will facilitate researchers and scholars to enhance the understanding of audit committee characteristics particularly the gender, frequency of AC meetings and independence members in the audit committee played in improving overall audit quality. The companies’ stakeholders like professional accountancy body and governments may use the outcomes from this research study to improve existing rules and government regulations and code of conducts of its members to improve the quality of their works. This study contributes to the relatively new discussion on the effect of audit committee characteristics on audit quality by adding internal audit function as a moderator in Malaysia. The outcome from this study may assist the companies’ stakeholders like professional accountancy body and governments in determining improved methods to enhance audit committee characteristics in improving audit quality.

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Kualitas Audit Didasarkan Pada Isu-Isu Keahlian Dan Profesionalisme Auditor

Manajerial ◽

10.31479/m.v9i2.25 ◽

2017 ◽

Vol 9 (2) ◽

pp. 83

Author(s):

Mohammad Ali Sartono

Keyword(s):

Audit Committee ◽

Audit Quality ◽

Audit Process ◽

Audit Firm ◽

Number Of Factors ◽

Regulatory Bodies ◽

Personal Qualities ◽

Potential Damage

<p align="justify">This research will examine the views from stakeholders on the quality of audits based on issues of expertise and professionalism of auditors, audits commercialization and transparency the audit. This study focuses attention on the response from implementation of audits quality regulations according to the company’s audits, the audit committee and investors. The focus of this research is an analysis of research by identifying four major drivers of audit quality, namely: culture in an audit firm; skills and personal qualities of audit partners and staff; the effectiveness of the audit process; the reliability and usefulness of audit reporting. In this study also identifies a number of factors that affect the quality of audit beyond the control of the auditor, namely: the approach taken by management; the contribution made by the audit committee; role of shareholders and commentators; role as a driver of audit quality litigation; regulatory approaches; the pressure caused by the acceleration reports. The results showed that the regulatory bodies and professionals involved in the management and improvement of audit quality to make efforts to improve the tarnished image, increase its legitimacy and reputation as well as the dominance of responses raised concerns about potential damage to the profession.</p>

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The Relationship between Audit Committee Characteristics, Audit Firm Quality and Companies’ Profitability

Asian Journal of Finance & Accounting ◽

10.5296/ajfa.v7i2.8530 ◽

2015 ◽

Vol 7 (2) ◽

pp. 215

Author(s):

Laith A Aryan

Keyword(s):

Corporate Governance ◽

Audit Committee ◽

Audit Quality ◽

Financial Statements ◽

Industrial Sector ◽

Committee Meeting ◽

Audit Firm ◽

The Relationship

<p>Jordan displayed keen interest in corporate governance in terms of enhancing the quality of financial statements and to restore the investors’ confidence. This study aimed to highlight the role of audit committee and external audit in enhancing companies’ profitability. Since there are contradictions in previous studies results, there is a need to test these relationships in Jordanian context to provide empirical evidence on this issue,especially after the corporate governance application became mandatory since 2009. This study has used industrial sector, which include 91 companies, only 69 companies were included in this study, the other 22 companies were excluded either newly listed or delisted during the study period (2009-2014). Multiple regression were used to analyze the data, the result showed positive relationships between audit committee meeting, audit committee size and companies profitability, while no significant relationship between audit committee composition, audit committee members literacy, audit quality and companies profitability. Such results would be beneficial to companies’ corporate governance committees to play their supervisory role. </p>

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The effect of audit committee characteristics on financial reporting quality: The moderating role of audit quality in the Netherlands

Corporate Ownership and Control ◽

10.22495/cocv18i3art2 ◽

2021 ◽

Vol 18 (3) ◽

pp. 19-30 ◽

Cited By ~ 1

Author(s):

Sana Mardessi Masmoudi

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Audit Committee ◽

Audit Quality ◽

Reporting Quality ◽

Ordinary Least Squares ◽

Real Earnings Management ◽

Financial Reporting Quality ◽

Moderating Role

The purposes of this study are to shed light, on the one hand, on the effect of audit committee characteristics, namely independent members in audit committee, a financial expert in audit committee, frequency of meetings and audit committee size on financial reporting quality proxied by real earnings management. On the other hand, it aims to investigate the moderating role of audit quality in the relationship between audit committee characteristics and financial reporting quality. The objective is to contribute to the new evidence on the role of audit committee characteristics towards the financial reporting quality with audit quality as a moderator, particularly the appointment of Big 4 company. This study uses the ordinary least squares (OLS) regression to achieve the research purpose by evaluating the data collected from 90 public listed companies from 2010 to 2019 in the Dutch context. The results state that audit committee characteristics have a statistically significant relationship with real earnings management. However, the effect of audit committee meetings on abnormal operating cash flow and discretionary expenses is not significant. There is also evidence that audit quality positively moderates the audit committee and real earnings management links. Lastly, the findings of this study will help professional accountancy bodies and governments to highlight the relevance of earnings management in safeguarding trustworthy financial information, owners’ wealth and to enhance audit committee characteristics in improving audit quality, especially after the enforcement of the Dutch Corporate Governance Code in 2016.

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The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization

Summer - GATR Journal of Finance and Banking Review ◽

10.35609/jfbr.2021.6.1(1) ◽

2021 ◽

Vol 6 (1) ◽

pp. 43-50

Author(s):

Jasman Jasman ◽

Etty Murwaningsari ◽

Sekar Mayangsari ◽

Susi Dwi Mulyani

Keyword(s):

Earnings Management ◽

Panel Data Analysis ◽

Capital Requirements ◽

Jel Classification ◽

Loan Loss ◽

Loan Loss Provision ◽

The Difference ◽

Conventional Banks ◽

The Relationship

Objective - Loan loss provision is an accrual for the banking industry, and therefore has a significant effect on bank accounting earnings and capital requirements. Previous studies showed inconsistent results for the relationship between earnings management, signaling, and loan loss provision. The difference in the results is thought to be caused by bank capitalization. Therefore, this study aims to investigate the role of bank capitalization on the effect of earnings management and signaling on loan loss provision. Methodology – The sample consists of 86 conventional banks in Indonesia for the period of 2015-2019. Furthermore, this study used panel data analysis of multiple regression. Findings – The results showed earnings management has no effect on loan loss provision. In contrast, signaling has a positive and significant effect. Although bank capitalization is not proven to weaken the effect of earnings management on loan loss provision, it strengthens the positive effect of signaling on loan loss provision. Novelty – This study proves that bank capitalization has an important role in moderating signaling impact on loan loss provision but not for the effect of earnings management. This is due to the potential for earnings management in banks is relatively low because banks are highly regulated entities and with regulated governance mechanisms limit the managers' discretionary accounting decisions. Type of Paper - Empirical Keywords: Bank Capitalization, Earnings Management, Signaling JEL Classification: G23, G32. URI: http://gatrenterprise.com/GATRJournals/JFBR/vol6.1_1.html DOI: https://doi.org/10.35609/jfbr.2021.6.1(1) Pages 43 – 50

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Banking and Finance from the Revolution to the Civil War

Oxford Research Encyclopedia of American History ◽

10.1093/acrefore/9780199329175.013.166 ◽

2019 ◽

Author(s):

Sharon Ann Murphy

Keyword(s):

United States ◽

Civil War ◽

Financial System ◽

The United States ◽

Savings Banks ◽

Banking Institutions ◽

New Nation ◽

Civil War Era ◽

The Military ◽

The Revolution

In creating a new nation, the United States also had to create a financial system from scratch. During the period from the Revolution to the Civil War, the country experimented with numerous options. Although the Constitution deliberately banned the issuance of paper money by either Congress or the states, states indirectly reclaimed this power by incorporating state-chartered banks with the ability to print banknotes. These provided Americans with a medium of exchange to facilitate trade and an expansionary money supply to meet the economic needs of a growing nation. The federal government likewise entered into the world of money and finance with the incorporation of the First and Second Banks of the United States. Not only did critics challenge the constitutionality of these banks, but contemporaries likewise debated whether any banking institutions promoted the economic welfare of the nation or if they instead introduced unnecessary instability into the economy. These debates became particularly heated during moments of crisis. Periods of war, including the Revolutionary War, the War of 1812, and the Civil War, highlighted the necessity of a robust financial system to support the military effort, while periods of economic panic such as the Panic of 1819, the Panics of 1837 and 1839, and the Panic of 1857 drew attention to the weaknesses inherent in this decentralized, largely unregulated system. Whereas Andrew Jackson succeeded in destroying the Second Bank of the United States during the Bank War, state-chartered commercial banks, savings banks, and investment banks still multiplied rapidly throughout the period. Numerous states introduced regulations intended to control the worst excesses of these banks, but the most comprehensive legislation occurred with the federal government’s Civil War-era Banking Acts, which created the first uniform currency for the nation.

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Auditor Selection and Audit Committee Characteristics

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2000.19.2.47 ◽

2000 ◽

Vol 19 (2) ◽

pp. 47-66 ◽

Cited By ~ 261

Author(s):

Lawrence J. Abbott ◽

Susan Parker

Keyword(s):

Corporate Governance ◽

Audit Committee ◽

Audit Quality ◽

Audit Committees ◽

Industry Specialization ◽

The Subject ◽

Auditor Selection ◽

High Level ◽

Industry Specialist

The role of the audit committee in corporate governance is the subject of increasing public and regulatory interest. We focus on one frequently noted function of the audit committee: auditor selection. We argue that independent and active audit committee members demand a high level of audit quality because of concerns about monetary or reputational losses that may result from lawsuits or SEC sanction. Auditors who specialize in the client's industry are expected to provide a higher level of audit quality than do nonspecialists. Thus, we predict that firms with audit committees that are both independent and active are more likely to employ an industry-specialist auditor. We find that firms with audit committees that do not include employees and that meet at least twice per year are more likely to use specialists. This study contributes to our understanding of audit committee functions and provides evidence that industry specialization is an important element of auditor selection.

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