scholarly journals Affiliated Former Partners on the Audit Committee: Influence on the Auditor-Client Relationship and Audit Quality

2018 ◽  
Vol 38 (3) ◽  
pp. 95-119 ◽  
Author(s):  
Brant E. Christensen ◽  
Thomas C. Omer ◽  
Marjorie K. Shelley ◽  
Paul A. Wong
Keyword(s):  
Quality Improvement ◽  
Social Identity ◽  
Social Identity Theory ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Committees ◽  
Client Relationship ◽  
External Auditor ◽  
Jel Classifications

SUMMARY Researchers and practitioners have expressed the need to understand better the interactions between audit committees and auditors and how these interactions affect audits. Former partners affiliated with the external auditor and serving on the audit committee are a subset of audit committee members who can affect the audit. Consistent with social identity theory, we find that companies with an affiliated partner on their audit committee are less likely to dismiss the member's former firm than companies without the affiliation. Further, we find improved audit quality and increased effectiveness of auditor effort when affiliated partners serve on the audit committee. Finally, this quality improvement occurs contemporaneously with a reduction in audit fees and time spent on fieldwork, suggesting increased efficiency. Our study provides evidence that affiliated former partners on audit committees extend the tenure of the auditor-client relationship while also improving audit processes and outcomes. JEL Classifications: M4; M42; G3.

Overseeing the external audit function: Evidence from audit committees’ reported activities

2022 ◽  
Author(s):  
Brian Bratten ◽  
Monika Causholli ◽  
Valbona Sulcaj
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Audit Committees ◽  
Composite Measure ◽  
External Audit ◽  
Earnings Benchmarks ◽  
Prior Literature ◽  
External Auditor

Recently, in response to calls for more transparency, many firms have begun reporting the activities undertaken by their audit committees in overseeing the work of the external auditor. We use a composite measure of audit committees’ reported oversight activities for a sample of S&P 1500 firms and examine the extent to which these reported activities are associated with audit quality. We find that when firms’ audit committees report exerting strong oversight, they have higher audit quality as proxied by audit fees, discretionary accruals, the likelihood of meeting or beating earnings benchmarks, and restatements. We also find that the market reacts positively to reports indicating strong oversight, consistent with perceptions of higher audit quality. This study extends prior literature on audit committees by introducing a new comprehensive measure of audit committees’ reported oversight activities and sheds light on how these activities map into audit quality.

Gender diversity on audit committees and its impact on audit fees: evidence from India

2019 ◽  
Vol 32 (4) ◽  
pp. 568-586 ◽  
Author(s):  
Seema Miglani ◽  
Kamran Ahmed
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Audit Fees ◽  
Ordinary Least Squares ◽  
Audit Committees ◽  
Women Directors ◽  
Least Squares Regression ◽  
Content Type ◽  
Financial Expert

Purpose The purpose of this study is to examine the relationship existing between gender diverse (women directors) audit committees and audit fees. Design/methodology/approach The authors use a sample of 200 listed Indian firms over a four-year period (2011-2014). Ordinary least squares regression is used to assess whether and how the presence of women directors on audit committees affects the fee paid to the external auditor in India. To deal with the self-selection bias, the authors use a two-stage model developed using Heckman’s (1976) method. Findings The results show a significant positive relationship between the presence of a woman financial expert on the audit committee and audit fees after controlling for a number of firm-specific and governance characteristics and potential endogeneity with the propensity-matching score analysis. From the demand-side perspective of audit pricing, the results indicate that women financial experts on audit committees increase the need for assurance provided by external auditors. Using interaction terms, the authors find that women with financial expertise on an audit committee have a stronger association with audit fees as entity becomes more complex. Research limitations/implications The findings suggest that audit committees with women financial experts are likely to demand higher audit quality, ceteris paribus. Practical implications Gender of the financial expert is critical to the audit committee’s effectiveness. The findings of this study have implications for the composition of an audit committee in a firm. Originality/value This study contributes to the extant literature by examining the less-researched topic of the association between the women representation on audit committees and audit fees. It also offers further empirical evidence that will influence the debate on the importance of gender diversity in corporations.

scholarly journals International Standard on Auditing No. 260 and Audit Quality: Evidence from Jordan

2019 ◽  
Vol 12 (4) ◽  
pp. 61
Author(s):  
Mohammad K. Shbeilat
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Qualitative Interviews ◽  
Communication Process ◽  
Audit Committees ◽  
Board Members ◽  
Liaison Officer ◽  
International Standard ◽  
Cumulative Voting ◽  
External Auditor

This study aims to explore the extent of external auditors awareness of the requirements of the International Standard on Auditing No. 260 (Communications with those charged with governance) on audit quality and to shed light on the effectiveness of the communication process based on auditors actual experience. A mixed method approach was employed to achieve the study objectives. The analysis of 116 questionnaires concluded that the requirements of the ISA 260 enhance audit quality, but the two-way communication between Jordanian auditors and the audit committee is ineffective from external auditor’s perception. The study also found that audit committees do not support external auditor when disagreements arise between auditors and their client management on accounting treatments. The qualitative interviews confirmed the quantitative results and revealed several explanations among which: 1) lack of qualified directors, 2) lack of a clear policy in selecting board members, 3) meetings with auditors are routinely held, and 4) insufficient oversight by the securities commission. The interviews also revealed that the recent version of Jordanian corporate governance has two potential factors have been viewed to improve the effectiveness of the communication process that are, the appointment of a ‘governance liaison officer’ who, among other responsibilities, supervise and document audit committee meetings with the auditor, and the use of cumulative voting technique in selecting board members. The findings of the study could be beneficial for regulators by ensuring the best implementation of cumulative voting to increase the representation of qualified members so that the communication process will be greatly enhanced.

The impact of audit committee effectiveness on audit fees and non-audit service fees

2018 ◽  
Vol 31 (2) ◽  
pp. 174-191 ◽  
Author(s):  
Muhammad Jahangir Ali ◽  
Rajbans Kaur Shingara Singh ◽  
Mahmoud Al-Akra
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Committees ◽  
Regulatory Requirements ◽  
Content Type ◽  
Financial Expertise ◽  
The Difference ◽  
Accounting Expertise ◽  
The Impact

Purpose The purpose of this study is to examine the impact of audit committee effectiveness on audit fees and non-audit service (NAS) fees in a less regulatory environment. Design/methodology/approach The authors construct a composite audit committee effectiveness measure incorporating audit committee independence, diligence, size, financial expertise and the chairperson’s accounting expertise. Findings The authors find that audit committee effectiveness has a positive significant impact on both audit fees and NAS fees. This suggests that effective audit committees can hold auditors accountable resulting in better audit quality and consequently higher audit fees. Originality/value The link between more effective audit committees with higher NAS purchases can be explained in light of the difference in regulatory requirements providing audit committees with decision rights on the use of NASs, therefore approving more NAS and increasing NASF. Additional tests and robustness analyses confirm the results.

scholarly journals The Impact of Audit Committe Characteristics on Audit Quality

2020 ◽  
Vol 23 (3) ◽  
pp. 363
Author(s):  
Paradisa Sukma, Yustrida Bernawati
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Committees ◽  
Observation Data ◽  
Manufacturing Companies ◽  
Ols Regression ◽  
The Impact

This research was conducted to investigate the effect of audit committee characteristics on audit quality. The characteristics of the audit committee used in this study are the number of audit committees, number of audit committee meetings, audit committee education background, and audit committee experience while audit quality is measured using audit fees. This study uses manufacturing companies listed on the Indonesia Stock Exchange in 2016 - 2018 with 70 observation data and uses OLS regression. The results of this study indicate all four Audit Characteristics, only size and experience significantly influence audit quality. While audit meetings and education do not significantly affect audit quality. Likewise with the education that can not ensure the capabilities possessed by members of the audit committee. Overall, the effectiveness of the audit committee has no significant effect on audit quality.

scholarly journals The Effects of Corporate Governance Practices on the Choice between Efficient and Opportunistic Earnings Management

2016 ◽  
Vol 11 (9) ◽  
pp. 1
Author(s):  
Tim Vervaat ◽  
Georgios Georgakopoulos ◽  
Konstantinos Z. Vasileiou ◽  
Ioannis Sotiropoulos
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Committees ◽  
Outside Directors ◽  
Study Results ◽  
Governance Practices ◽  
The Impact

This study aims to explore the preferences of the publicly listed companies on the S&P 500 index regarding their earnings management (efficient or opportunistic) as well as the impact of the corporate governance practices (audit committee, board independence and audit quality) on their decision. Using two separate regression models, it was found that American firms listed on the S&P 500 index tend to conduct efficient earnings management, which is in line with the findings of prior research. Moreover, it emerged that the earnings management selection does not depend on the amount (high vs small) of audit fees paid by the companies. Additionally, the governance practice of employing more outside directors in the audit committees leads to more efficient earnings management. Finally, according to the study results, the impact of discretionary accruals on future profitability is not significantly related to the proportion of independent members on the board of directors.

scholarly journals Effect of Audit Quality on Earnings Management in Insurance Companies in Nigeria e

2021 ◽  
Vol 7 (2) ◽  
pp. 173-202
Author(s):  
Chizoba Mary Nwoye ◽  
Alphonsus Sunday Anichebe ◽  
Ifeanyi Francis Osegbu
Keyword(s):  
Earnings Management ◽  
Financial Institutions ◽  
Financial Literacy ◽  
Audit Committee ◽  
Audit Quality ◽  
Financial Institution ◽  
Audit Fees ◽  
Audit Committees ◽  
Insurance Companies ◽  
And Performance

The main objective of the study is to determine the effect of audit quality on earnings management in insurance companies in Nigeria with special consideration on accruals and performance measures of earning manipulations using insurance companies in Nigeria. Preliminary analyses were conducted, such as descriptive statistics and correlation matrix. In analyzing the data, the study adopted panel multiple regression to identify the possible effects of audit quality on earnings management of financial institutions in Nigeria We interpreted fixed effect analysis after using Hausman test. The result shows that audit quality had a significant effect on earnings management. We conclude that longer stay of auditors in financial institutions increases accrual and performance manipulation. However, financial institutions audited by the Big 4 auditing firms are associated with less accrual and performance earnings manipulation while financial institutions that have executive and non-executive directors as members of audit committee have greater accrual and performance earnings manipulations. Higher number of financial experts in audit committee increases accrual manipulation while higher number of experts with accounting background in audit committee reduces performance manipulating. Finally, increase in auditors’ fee leads to choices of using accounting methods to manipulate both accrual and performance earnings. Therefore, the study recommends that, financial institutions should have maximum number of years for auditors to stay. They should focus more on increasing the number of experts with accounting background in audit committees. Accounting bodies should regulate auditors’ fee in line with the size of the financial institution. (JEL M42) Keywords: Audit Fees, Audit Committee Independence, Audit Firm Size, Audit Quality, Earnings Management, Financial Literacy of Audit Committee Members, Length of Audit Tenure.

Female audit committee directorship and audit fees

2020 ◽  
Vol 35 (3) ◽  
pp. 398-428 ◽  
Author(s):  
Yosra Mnif Sellami ◽  
Imen Cherif
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Audit Fees ◽  
Audit Committees ◽  
Women Directors ◽  
Initial Finding ◽  
Content Type ◽  
Female Directors ◽  
Demographic Attributes

Purpose The purpose of this paper is to examine the association between female audit committee representation and audit fees, taking into account their demographic attributes. Design/methodology/approach Research hypotheses have been tested by performing both univariate and multivariate analyses based on a sample of 790 firm-year observations from Swedish listed firms, spanning the period 2013-2017. Findings Initial finding derived from the empirical analyses provides consistent evidence of a positive association between female audit committee representation and audit fees. Controlling for self-selection bias, this finding holds unchanged. Therefore, female directors are voluntarily appointed to the companies audit committees. Including demographic attributes of women directors sitting in audit committees in the audit fees, models show that increased audit fees is driven by the level of female directors’ professional experience rather than their mere representation. Results from supplementary analysis document that the positive relationship between female audit committee representation and audit fees is more pronounced when the partner in charge of the audit engagement is a female, indicating that women presence on both the demand and supply-side of audit pricing enhance audit quality more importantly than when women are present on only the demand-side position of audit fees. Originality/value This study extends beyond recently published literature on the relation between audit committee gender-diversity and audit fees by offering a novel insight on demographic attributes of female directors enabling them to demand higher quality audits, as reflected by increased audit fees.

How Audit Committee Chairs Address Information-Processing Barriers

2020 ◽  
pp. 0000-0000 ◽  
Author(s):  
Clinton Free ◽  
Andrew J. Trotman ◽  
Ken T. Trotman
Keyword(s):  
Information Processing ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Policy Makers ◽  
Research Designs ◽  
Effective Performance ◽  
External Auditor ◽  
New Evidence

This study investigates the way that experienced audit committee Chairs address barriers to effective performance. We conceptualize audit committees as groups of individuals gathering, elaborating and sharing information and identify key group barriers to effective audit committee oversight. Drawing on 24 interviews with audit committee Chairs from leading Australian listed companies, we provide new evidence of the approaches used in practice to address information-processing barriers faced by audit committees. Specifically, we identify six key mechanisms: (1) audit committee composition; (2) pre-meetings; (3) handling of disagreements between management and auditors; (4) formal audit committee meeting facilitation; (5) promoting audit committee skepticism and (6) external auditor selection. Our findings provide insights for audit committee members, audit partners, and policy-makers as they aim to improve financial reporting and audit quality. These findings also have important implications for research designs of future experimental research.

scholarly journals Assessment of Factors Affecting Audit Quality: “A Study of Selected Companies Listed on the Ghana Stock Exchange”

2019 ◽  
Vol 9 (2) ◽  
pp. 436
Author(s):  
John Kwaku Mensah Mawutor ◽  
Borketey-La Francis B ◽  
Asamoah Douglas Obeng
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Negative Impact ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Committees ◽  
Cross Sectional ◽  
Factors Affecting ◽  
Ghana Stock Exchange ◽  
The Impact

This study sought to establish the factors affecting audit quality in listed companies in Ghana. A cross-sectional method was used in the analysis in which a linear regression model was also used to establish the impact of the independent variables namely; auditor size, the existence of audit committee and the logarithm of the auditor fees on the independent variable audit quality. The logarithm of audit fees was taken to normalize the data. The dependent variable “leverage ratio” (total debts divided by total assets of the company) used to measure debt pressure by the companies and also used as a proxy for the audit quality because high debts in relation to company assets can lead to bankruptcy. Twenty- five (25) companies listed on the Ghana Stock exchange were used as the sample of the study. The results of the analysis indicated that logarithm of audit fees, existence of audit committee, and auditor size were all significant in influencing the leverage of the companies and thus audit quality. The size of audit firm had a negative impact on audit quality, while the companies that do not have audit committees are more likely to have poor audit quality. The logarithm of audit fees was positively related with the audit quality. It is recommended that audit fees should be regulated by The Institute of Chartered Accountants Ghana (ICAG) as well as taking action against audit companies which do not adhere to auditing standards and the officials of companies who are involved in misstating the financial statements and other financial records with the intention of concealing the true and actual facts of the financial position of the company.

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