Audit Committee Characteristics and Restatements

2004 ◽  
Vol 23 (1) ◽  
pp. 69-87 ◽  
Author(s):  
Lawrence J. Abbott ◽  
Susan Parker ◽  
Gary F. Peters
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Negative Association ◽  
Activity Level ◽  
Audit Committees ◽  
Control Group ◽  
Blue Ribbon ◽  
Financial Restatement ◽  
Financial Expertise ◽  
The Impact

This study addresses the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial restatement. We examine 88 restatements of annual results (without allegations of fraud) in the period 1991–1999, together with a matched pairs control group of firms of similar size, exchange listing, industry and auditor type. We find that the independence and activity level (our proxy for audit committee diligence) of the audit committee exhibit a significant and negative association with the occurrence of restatement. We also document a significant negative association between an audit committee that includes at least one member with financial expertise and restatement. To test the robustness of the results we also consider a sample of 44 fraud and no-fraud firms and arrive at largely similar findings. Our results underscore the importance of the BRC's recommendations as a means of strengthening the monitoring and oversight role that the audit committee plays in the financial reporting process.

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).

Busyness, Expertise, and Financial Reporting Quality of Audit Committee Chairs and Financial Experts

2014 ◽  
Vol 34 (2) ◽  
pp. 59-89 ◽  
Author(s):  
Paul N. Tanyi ◽  
David B. Smith
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Negative Association ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Committee Chairman ◽  
Committee Chair ◽  
Financial Expertise ◽  
Reporting Process

SUMMARY We investigate how the number of audit committee chair positions and other audit committee financial expertise positions held by the audit committee chairman and the audit committee financial experts affects their ability to oversee a company's financial reporting process. We argue that these two audit committee roles are vital to the functioning of the audit committee and that their over commitment affects audit committee oversight and the firm's financial reporting quality. We observe a significant negative association between financial reporting quality and the number of audit committee chair positions and other audit committee financial expertise positions held by the audit committee chairman. We also find a significant negative association between financial reporting quality and the number of audit committee chair positions and other audit committee financial expertise positions held by audit committee financial experts. Firms with busy audit committee chairs or busy financial experts have significantly higher levels of abnormal accruals, and are more likely to meet or beat earnings benchmarks, which is consistent with the busyness hypothesis. This adverse effect, nonetheless, does not extend to nonaudit committee chairs and nonaudit committee financial experts. We interpret these results to indicate that the busyness of the audit committee chair and financial expert weakens the monitoring and oversight role that audit committees play in the financial reporting process.

scholarly journals The Effect of Audit Committee Characteristics and Auditor Changes on Financial Restatement in Iran

2021 ◽  
Vol 31 ◽  
pp. 397-416
Author(s):  
Mahdi Salehi ◽  
Mahdi Mokhtarzadeh ◽  
Mohammad Sadegh Adibian
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Logistic Regression Model ◽  
Stock Exchange ◽  
Negative Association ◽  
Financial Restatement ◽  
Simultaneous Evaluation ◽  
The Impact

The present study aims to realize and become more familiar with the impact and the functions of audit committee and its characteristics, including the expertise and independence of members, related experiences, and change of auditor on the quality of financial reporting in companies listed on the Tehran Stock Exchange (TSE). The required data are gathered from 105 listed companies on the TSE during 2012-2016 and logistic regression model is used for the hypothesis testing. The findings of the study indicate a positive and significant impact of audit committee characteristics, except audit independency which represents a negative association, and changes of auditor on financial restatement. The innovation of the present study relative to other conducted studies lies in the simultaneous evaluation of audit committee characteristics and change of auditor on the quality of financial reporting. Such results could be appropriate for Stocks and Securities practitioners to comply with the chart of the audit committee, to necessitate the use of corporate governance principles, and to voluntarily provide a corporate governance report.

scholarly journals Audit committee quality and audit report lag: the role of mandatory adoption of IFRS in Saudi companies

Accounting ◽  
2021 ◽  
pp. 167-178
Author(s):  
Mahfod Mobarak Aldoseri ◽  
Nasr Taha Hassan ◽  
Magdy Melegy Abd El Hakim Melegy
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Audit Committees ◽  
Strong Impact ◽  
Audit Report ◽  
Before And After ◽  
Mandatory Adoption ◽  
The Impact ◽  
Weak Influence

This paper aims to examine the effect of audit committee characteristics on audit report lag, and also explores whether this effect will vary between before and after mandatory adoption of IFRS in Saudi listed companies. Based on a Saudi sample of 388 firm-year observations from 2015 to 2018, the Poisson regression analysis shows that among audit committee characteristics, only audit committee financial experience significantly influences the timing of financial reporting. The result indicates a weak influence of audit committees on timeliness of financial reporting, which is consistent with the results of most of previous studies. On the other hand, the results show a strong impact of the adoption of IFRS on the context of that relationship, where the results show the impact of IFRS on audit report lag, audit committee quality and the association between them.

The impact of audit committee financial expertise on de facto use of IFRS: does external auditor’s size matter?

2020 ◽  
Vol 20 (7) ◽  
pp. 1243-1263
Author(s):  
Ahmed Atef Oussii ◽  
Mohamed Faker Klibi
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
International Standards ◽  
Moderator Variable ◽  
Content Type ◽  
Big 4 ◽  
Important Message ◽  
Financial Expertise ◽  
Size Matter ◽  
The Impact

Purpose De facto use of International Financial Reporting Standards (IFRS) is a particular form of voluntary compliance with International Accounting Standards (IAS). It is practiced when an enterprise uses a number (and not all) of international standards as a complement to overcome the unachieved nature of local generally accepted accounting principles. The purpose of this paper is to analyze, at first, whether the financial expertise of Tunisian audit committee’s members is associated with de facto use of IFRS. Second, it explores to what extent and in what direction this association evolves when the factor auditor’s size is introduced as a moderator variable. Design/methodology/approach Data spanning a seven-year period (2012–2018) was hand-collected for a sample of 497 firm-year observations. Further, regression analysis was used to test the study’s hypothesis. Findings Findings show that the proportion of financial experts who sit on the audit committee is positively associated with the de facto use of IFRS. Besides, the association between audit committee members’ financial expertise and the voluntary use of IFRS is more pronounced when the company is audited by at least one BIG 4 audit firm. Practical implications The paper’s findings have implications for regulatory bodies and standards setters who are concerned with the functioning of the audit committee, especially when it comes to enhancing the quality of the financial statements. The results also shed light on the role of financial experts on the audit committee and Big 4 auditors to enforce the de facto use of IFRS. Originality/value The findings of this study contain an important message for the drift toward national de jure convergence with IAS.

scholarly journals The Impact of Audit Committee Characteristics on Earnings Management: A Canadian Case Study

2015 ◽  
Vol 2 (1) ◽  
pp. 68
Author(s):  
Lynda Ioualalen ◽  
Hanen Khemakhem ◽  
Richard Fontaine
Keyword(s):  
Earnings Management ◽  
Audit Committee ◽  
Management Practices ◽  
Stock Exchange ◽  
Empirical Test ◽  
Control Group ◽  
Toronto Stock Exchange ◽  
Financial Expertise ◽  
The Impact

The objective of this study was to analyze the impact of three Audit Committee (AC) characteristics, financial expertise, diversity and activism on aggressive earnings management. We hypothesized that these AC characteristics are negatively related to aggressive earnings management. To test or hypothesis, we conducted an empirical test with a sample of 10 Canadian corporations listed on the Toronto stock exchange: 5 companies that were accused of aggressive earnings management and 5 other corporations used as a control group. We analyzed the 5-year period prior to the accusation (1999-2003). We measured earnings management by the level of discretionary accruals (using the modified Jones model (1995). Our results show that activism and the financial expertise of AC members are negatively related to aggressive earnings management; however, we did not find a significant relationship between diversity and aggressive earnings management. These results contribute to help governance oversight organizations identify AC characteristics that have the most influence on the detection of aggressive earnings management, which could help agencies develop and enforce methods to detect and reduce aggressive earnings management practices.

The Impact on Auditor Judgments of CEO Influence on Audit Committee Independence

2011 ◽  
Vol 30 (4) ◽  
pp. 129-147 ◽  
Author(s):  
Jeffrey R. Cohen ◽  
Lisa Milici Gaynor ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Data Availability ◽  
Audit Committees ◽  
Undue Influence ◽  
Management Incentives ◽  
Auditor Judgments ◽  
The Impact ◽  
Selection Of

SUMMARY Despite the importance of audit committee independence in ensuring the integrity of the financial reporting process, recent research suggests that even when audit committees meet regulatory independence requirements, certain factors, such as undue influence by the CEO over the selection of the audit committee, may diminish the ability of its members to be substantively independent. This study investigates whether auditors consider CEO influence over audit committee independence when making audit judgments where management's incentives to manage earnings differ. In an experiment, we find that audit partners and managers waive a larger amount of a proposed audit adjustment when management's incentives for earnings management are low than when incentives are high. However, when management incentives are high, auditors are less likely to waive as much of an adjustment when the CEO has less influence over the audit committee's independence than when the CEO's influence is greater. In all, the results support our expectations that auditors consider CEO influence on audit committee independence in the resolution of contentious accounting issues. Data Availability: Contact the authors.

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.

The Impact of Audit Committee Information Technology Expertise on the Reliability and Timeliness of Financial Reporting

2019 ◽  
Vol 95 (5) ◽  
pp. 23-56 ◽  
Author(s):  
Musaib Ashraf ◽  
Paul N. Michas ◽  
Dan Russomanno
Keyword(s):  
Information Technology ◽  
Financial Reporting ◽  
Fixed Effects ◽  
Audit Committee ◽  
Data Availability ◽  
Audit Committees ◽  
Material Weaknesses ◽  
Other Information ◽  
High Quality Information ◽  
The Impact

ABSTRACT We examine whether information technology expertise on audit committees impacts the reliability and timeliness of financial reporting. We find a reduction in the likelihood of material restatement, a reduction in the likelihood of information technology-related material weaknesses (which account for 55 percent of all reported material weaknesses), and more timely earnings announcements at firms with audit committee information technology expertise. These findings are robust to controlling for a firm's other information technology attributes, as well as when using entropy balanced samples, and we mitigate endogeneity concerns with evidence that our findings hold in a subsample of firms that all possess overall high-quality information technology. Finally, a difference-in-differences analysis, inclusion of firm fixed effects, and a falsification test largely support our assertion that the quality of financial reporting is significantly improved by the presence of an audit committee information technology expert. JEL Classifications: M41; M15. Data Availability: All data used in the study are publicly available.

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