The Association between Audit Committee Characteristics and Audit Fees

2003 ◽  
Vol 22 (2) ◽  
pp. 17-32 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker ◽  
Gary F. Peters ◽  
K. Raghunandan
Keyword(s):  
Audit Committee ◽  
Audit Fees ◽  
Audit Committees ◽  
Independent Directors ◽  
Span Of Control ◽  
Big 5 ◽  
Financial Expertise ◽  
Disclosure Rules ◽  
Using Data

This study examines the association between audit committee characteristics and audit fees, using data gathered under the recent SEC fee disclosure rules. We hypothesize that audit fees will be positively associated with audit committee independence, financial expertise, and meeting frequency. We examine a sample of 492 nonregulated, Big 5-audited firms that filed proxy statements with the SEC in the period from February 5, 2001 to June 30, 2001. We find that audit committee independence (defined as an audit committee comprised entirely of outside, independent directors) and financial expertise (defined as an audit committee containing at least one member with financial expertise) are significantly, positively associated with audit fees. This is in contrast to the findings of Carcello et al. (2002a), who find that audit committee characteristics are not significant in the presence of board-related variables. Meeting frequency (defined as an audit committee that meets at least four times annually) was not associated with higher audit fees at conventional levels. This evidence is consistent with audit committees taking actions within their span of control to ensure a higher level of audit coverage.

Materiality Judgments and the Resolution of Detected Misstatements: The Role of Managers, Auditors, and Audit Committees

2012 ◽  
Vol 87 (5) ◽  
pp. 1641-1677 ◽  
Author(s):  
Marsha B. Keune ◽  
Karla M. Johnstone
Keyword(s):  
Audit Committee ◽  
Audit Fees ◽  
Managerial Incentives ◽  
Data Availability ◽  
Audit Committees ◽  
Analyst Following ◽  
Financial Expertise ◽  
Using Data

ABSTRACT This study investigates how manager and auditor incentives, along with audit committee characteristics, are associated with materiality judgments about detected misstatements. Using data on detected misstatements that occurred between 2003 and 2006, we find auditors' incentives to protect their reputations weaken the effect of managerial incentives associated with the pressure created by analyst following; auditors are less likely to allow managers to waive material misstatements as audit fees increase. Regarding audit committee characteristics, results reveal that audit committees with greater financial expertise are less likely to allow managers to waive material misstatements compared to audit committees with less expertise. Data Availability: Data used in the study are available from public sources.

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 Effects of Politically Connected Audit Committees on Audit Fees: Evidence in Malaysia

2018 ◽  
Vol 5 (1) ◽  
pp. 1
Author(s):  
Nurul Nazlia Jamil
Keyword(s):  
Audit Committee ◽  
Positive Relationship ◽  
Emerging Market ◽  
Audit Fees ◽  
Business Environment ◽  
Audit Committees ◽  
Political Connections ◽  
Archival Data ◽  
External Resources ◽  
Financial Expertise

This study aims to contribute to an understanding of politically connected audit committees on audit fees in an emerging market, using the case of Malaysia. Malaysia offers an interesting and important setting as Malaysian companies are highly concentrated and politically sensitive. In particular, the study seeks to examine the level of political connections represented in the audit committees associated with the level of audit fees incurred by Malaysian public listed companies. For the purpose of this study, a quantitative approach (archival data analysis) has been adopted. Three hypotheses are tested: (1) There is a positive relationship between the proportion of audit committee members who are senior government officers (SGO) and audit fees; (2) There is a positive relationship between the proportions of audit committee members who are politicians and audit fees; (3) There is a positive relationship between audit committee characteristics (independence, size, meeting and financial expertise) and audit fees. The results of the study indicate that politically connected audit committees (identified by members who are either senior government officers or politicians) have a significant association with the incidence of higher audit fees. This suggests that politically connected audit committees are able to capitalize on their connections to influence companies and create direct demand for the auditors to increase their audit effort, as measured by audit fees. One of the issues that emerge from these findings is that companies highly value political connections to obtain external resources given the uncertainties in the business environment. Also, the findings highlight the need for stronger corporate governance to mitigate the higher inherent audit risks in politically connected companies.

scholarly journals An Investigation on the Audit Committees Effectiveness: The Case for GLCs in Malaysia

2011 ◽  
Vol 13 (3) ◽  
pp. 287 ◽  
Author(s):  
Nurul Nazlia Jamil ◽  
Sherliza Puat Nelson
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Financial Expertise ◽  
Monitoring Mechanism ◽  
The Impact

Financial reporting quality has been under scrutiny especially after the collapse of major companies. The main objective of this study is to investigate the audit committee’s effectiveness on the financial reporting quality among the Malaysian GLCs following the transformation program. In particular, the study examined the impact of audit committee characteristics (independence, size, frequency of meeting and financial expertise) on earnings management in periods prior to and following the transformation program (2003-2009). As of 31 December 2010, there were 33 public-listed companies categorized as Government-Linked Companies (GLC Transformation Policy, 2010) and there were 20 firms that have complete data that resulted in the total number of firm-year observations to 120 for six years (years 2003-2009).  Results show that the magnitude of earnings management as proxy of financial reporting quality is influenced by the audit committee independence. Agency theory was applied to explain audit committee, as a monitoring mechanism as well as reducing agency costs via gaining competitive advantage in knowledge, skills, and expertise towards financial reporting quality. The study is important as it provides additional knowledge about the impact of audit committees effectiveness on reducing the earnings management, and assist practitioners, policymakers and regulators such as Malaysian Institute of Accountants, Securities Commission and government to determine ways to enhance audit committees effectiveness and improve the financial reporting of GLCs, as well as improving the quality of the accounting profession.     

Audit committee effectiveness and financial reporting timeliness

2018 ◽  
Vol 9 (1) ◽  
pp. 34-55 ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila Taktak
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Emerging Market ◽  
Listed Companies ◽  
Audit Committees ◽  
Future Research ◽  
Governance System ◽  
Content Type ◽  
Financial Expertise ◽  
The Impact

Purpose The purpose of this paper is to investigate whether there is any relationship between the effectiveness of an audit committee and the financial reporting timeliness of Tunisian listed companies as proxied by external audit delay (AD). Analysis focuses on five audit committee characteristics: authority, financial expertise, independence, size and diligence. Design/methodology/approach Empirical tests address 162 firm-year observations drawn from Tunisian listed companies during 2011-2013. Findings Multivariate analyses indicate that audit committees with members who have financial expertise are significantly associated with shorter AD. Thus, the results suggest that audit committee financial expertise contributes to the improvement of financial statements’ timeliness. Research limitations/implications The audit committee attributes examined in this study were based on DeZoort et al. (2002) framework. There could be other aspects of audit committee effectiveness such as audit committee tenure and audit committee chair characteristics, which were not addressed in the present study. Thus, future research may consider and examine these other components of audit committee effectiveness. Practical implications Findings have managerial implications. Companies can re-look into how to further improve audit committee composition in order to enhance the timeliness of financial reporting. The issues of audit committee effectiveness and timely reporting also affect regulators and policy makers since they need to play a role in the establishment of effective audit committees and the improvement of financial reporting timeliness. Originality/value This study is one of few that have examined the impact of audit committee effectiveness on ADs in an emerging market country. Findings lend credence to the belief that audit committee members’ financial expertise enhances the quality of financial reporting by firms in a North African market criticized for the lack of maturity of its corporate governance system (Klibi, 2015; Fitch Ratings, 2009).

scholarly journals Gender Diversity of Audit Committees and Audit Fees: Evidence from Chinese Listed Companies

2015 ◽  
Vol 7 (2) ◽  
pp. 239 ◽  
Author(s):  
Rui Xiang ◽  
Meng Qin ◽  
Craig A Peterson
Keyword(s):  
Audit Committee ◽  
Gender Diversity ◽  
Audit Fees ◽  
Listed Companies ◽  
Audit Committees ◽  
Men And Women ◽  
Public Company ◽  
Chinese Listed Companies ◽  
State Enterprises ◽  
The Relationship

<p>This paper investigates whether women, who serve on the audit committee of the board, can have a significant impact in reducing audit fees paid by China's A-share listed companies during the period 2004 to 2007. We show that audit committees composed of both men and women pay significantly smaller audit fees. The relationship is significantly greater in non-state enterprises than that exhibited by state-owned enterprises and significantly greater in companies deemed to have weak management vis-à-vis strong management. Further analysis shows that the composition of the committee is irrelevant when management is strong, regardless of whether it provides guidance for a state-owned enterprise or a strictly public company. When management is deemed weak, however, gender diversity is associated with smaller fees.</p>

Audit committee ownership and audit report lag: evidence from Australia

2020 ◽  
Vol 28 (1) ◽  
pp. 96-125
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Mabel D’Costa
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Financial Statements ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Audit Report ◽  
Content Type ◽  
External Auditors ◽  
Using Data

Purpose This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting process, to ensure that financial statements are both credible and released to external stakeholders in a timely manner. To date, however, the extent to which audit committee ownership strengthens or compromises member independence, and hence, influences audit report lag, has remained unexplored. Design/methodology/approach This paper hypothesizes that audit committee ownership is associated with audit report lag. Further, the author hypothesize that both the financial reporting quality and the going concern opinions of a firm mediate the effect of audit committee ownership on audit report lag. Findings Using data from Australian listed companies, the author find that audit committee ownership increases audit report lag. The author further document that financial reporting quality and modified audit opinions rendered by external auditors mediate this positive relationship. The results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to the audit committee members. Originality/value The study contributes to both the audit report timeliness and the corporate governance literatures, by documenting an adverse effect of audit committee ownership.

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.

Who's Really in Charge? Audit Committee versus CFO Power and Audit Fees

2014 ◽  
Vol 89 (6) ◽  
pp. 2057-2085 ◽  
Author(s):  
Matthew J. Beck ◽  
Elaine G. Mauldin
Keyword(s):  
Audit Committee ◽  
Economic Recession ◽  
Audit Fees ◽  
Auditor Independence ◽  
Negotiation Process ◽  
Data Availability ◽  
Audit Committees ◽  
Exogenous Shock ◽  
Cast Doubt ◽  
Recent Financial Crisis

ABSTRACT Although regulation makes audit committees responsible for determining and negotiating audit fees, researchers and practitioners express concerns that CFOs continue to control these negotiations. Thus, regulation may give investors a false sense of security regarding auditor independence. We utilize the recent financial crisis and economic recession as an exogenous shock that allows us to shed light on the relative influence of the audit committee and the CFO on fee negotiations. During the recession, we find larger fee reductions in the presence of more powerful CFOs, and smaller fee reductions in the presence of more powerful audit committees. We also find the CFO or the audit committee primarily influences fees when their counterpart is less powerful. Our findings suggest a more complex relationship between the CFO and the audit committee than current regulations recognize and cast doubt on the ability of regulation to force one structure on the negotiation process. Data Availability: Data are available from public sources identified in the text.

The Composition of Nonprofit Audit Committees

2006 ◽  
Vol 20 (1) ◽  
pp. 75-90 ◽  
Author(s):  
Thomas E. Vermeer ◽  
K. Raghunandan ◽  
Dana A. Forgione
Keyword(s):  
Nonprofit Organizations ◽  
Audit Committee ◽  
Nonprofit Sector ◽  
Internal Audit ◽  
Audit Committees ◽  
Chief Financial Officers ◽  
Independent Directors ◽  
Government Grants ◽  
Sarbanes Oxley ◽  
Financial Expert

Audit committee composition has attracted significant attention from legislators and regulators in recent years. Although most of the focus has been on corporate audit committees, recent legislative efforts underscore the importance of governance in the nonprofit sector. Using data from a survey of 118 chief financial officers of nonprofit organizations as well as financial data from the GuideStar database, we examine the composition of nonprofit audit committees and factors associated with their composition. The data show that many nonprofits have not adopted Sarbanes-Oxley reforms, since we find that 36 percent of nonprofits have audit committees that are not completely independent. Organizations that are larger, receive government grants, and use a Big 4 auditor are more likely to have audit committees with solely independent directors. Surprisingly, universities and hospitals are less likely to have solely independent directors on the audit committee. Eighty-eight percent of nonprofits have at least one financial expert on the audit committee, and organizations that receive government grants and have an internal audit function are more likely to have a financial expert on the committee. Overall, our findings support the view that nonprofit audit committee composition varies in response to the demands related to the need for resources, the presence of other monitoring mechanisms, and the type of nonprofit.

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