Does Audit Committee Disclosure of Partner-Selection Involvement Signal Greater Audit Quality?

2021 ◽  
Author(s):  
Jimmy F. Downes ◽  
Michelle A. Draeger ◽  
Abbie E. Sadler
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Selection Process ◽  
Partner Selection ◽  
Analyst Forecasts ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Voluntary Disclosures ◽  
Level Of Involvement ◽  
Selection Of

We investigate whether audit committees use voluntary disclosures to signal the committees’ higher level of involvement in the audit partner-selection process, which contributes to higher levels of audit quality. Audit committees more involved in the partner-selection process should ensure the selection of a more rigorous partner. We test this conjecture by first identifying partners new to audit engagements. We then compare audit quality for companies whose audit committees disclose involvement in the selection of the new partner to those without this disclosure. We find that this disclosure is positively associated with audit quality (measured using discretionary accruals, misstatements, and meeting consensus analyst forecasts by a very small margin). Our results are more salient for complex companies and those with powerful audit committees. These findings highlight that audit committees use their disclosures to signal involvement in the partner-selection process and are relevant to the Securities and Exchange Commission.

The impact of audit committee characteristics on internal audit professionalization: empirical evidence from Greece

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Christina Vadasi ◽  
Michalis Bekiaris ◽  
Andreas G. Koutoupis
Keyword(s):  
Empirical Evidence ◽  
Audit Committee ◽  
Audit Quality ◽  
Research Question ◽  
Internal Audit ◽  
Audit Committees ◽  
Annual Reports ◽  
Substantial Impact ◽  
Content Type ◽  
The Impact

Purpose This paper aims to provide empirical evidence of the association between audit committee characteristics and internal audit quality through internal audit professionalization. Design/methodology/approach The investigation of the research question was based on 45 usable responses that were received from a survey of chief audit executives from firms listed on the Athens Stock Exchange and combined with publicly available information from annual reports. Findings The results indicate that audit committee characteristics (independence, diligence through frequent meetings and interaction with internal audit through valuation) influence internal audit professionalization. In addition, they demonstrate that internal audit professionalization is also influenced by CEO duality and firm’s external auditor. Practical implications The findings of this study have implications for audit committees wishing to improve their overall effectiveness, by identifying areas with substantial impact on internal audit quality. Moreover, regulators of corporate governance bodies can also benefit from the results to strengthen audit committee’s efficiency regarding internal audit function oversight. Originality/value The results add to the literature on the discussion of internal audit professionalization and complement the work of other researchers in the field of audit committee’s impact on internal audit quality/effectiveness. This study attempts to fill a gap in the literature on the effect of audit committee characteristics on internal audit professionalization, an element introduced from an institutional theory perspective.

scholarly journals The Impact of Audit Committees on US Nonprofit Organizations’ Governance

2020 ◽  
Vol 27 (1) ◽  
pp. 30
Author(s):  
Husam Abu-Khadra
Keyword(s):  
Nonprofit Organizations ◽  
Audit Committee ◽  
Nonprofit Sector ◽  
The United States ◽  
Preliminary Evidence ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Public Companies ◽  
Policy Makers ◽  
The Impact

All public companies in the United States are required by the securities and exchange commission (SEC) to have an audit committee. Such enforcement can be attributed to high-profile corporate failures and their connections to nonexistence, ineffective or weak audit committees and governance. Despite the efforts to establish a similar argument and enforcement structure for the nonprofit sector, the internal revenue service (IRS) has not pursued legislation, and no empirical evidence has been established to support any public policy changes. This paper contributes to the literature in this field by being the first study to examine 124,980 nonprofit organizations during the period of 2010 to 2015 to test the association between governance in nonprofit organizations and audit committees. We included fifteen measures from these organizations’ IRS Form 990 filings to formulate the study variables. We found significant evidence that the existence of audit committees improves the governance scores of nonprofit organizations. Our study findings have significant implications for nonprofit executives, policy makers and any other interested parties; these findings act as preliminary evidence to support more proactive policies regarding mandatory audit committees for nonprofit organizations. 

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.

Financial Restatements and Shareholder Ratifications of the Auditor

2009 ◽  
Vol 28 (1) ◽  
pp. 225-240 ◽  
Author(s):  
Li-Lin Liu ◽  
K. Raghunandan ◽  
Dasaratha Rama
Keyword(s):  
Audit Quality ◽  
Empirical Support ◽  
Securities And Exchange Commission ◽  
Financial Statement ◽  
Shareholder Voting ◽  
Financial Restatements ◽  
Preceding Period ◽  
Significant Attention ◽  
The U.S ◽  
Selection Of

SUMMARY: Regulators and legislators have focused significant attention on financial statement restatements in recent years, and the U.S. Securities and Exchange Commission (SEC) and financial statement users view restatements as audit failures. The SEC (2000, 2003a) suggests that shareholder voting on auditor ratification will be impacted by perceptions of audit quality. In this paper we examine shareholder voting on auditor ratifications in 2005 or 2006 following restatement announcements by SEC registrants. We find that shareholders are more likely to vote against auditor ratification after a restatement when compared with votes at (1) firms without restatements or (2) restating firms in the preceding period. Overall, the results provide empirical support to the SEC's assertion that shareholder voting on auditor ratification will be related to perceptions of audit quality, and also support recent actions by shareholder activists to require all firms to submit the selection of the auditor for a ratification vote by shareholders.

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.

scholarly journals Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees

2020 ◽  
Vol 39 (1) ◽  
pp. 173-197 ◽  
Author(s):  
Nigar Sultana ◽  
Steven F. Cahan ◽  
Asheq Rahman
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Positive Association ◽  
Data Availability ◽  
Audit Committees ◽  
Women Directors ◽  
Corporate Governance Codes ◽  
Limited Supply ◽  
The Impact

SUMMARY Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text.

scholarly journals Pengaruh Efektivitas Komite Audit, Efektivitas Internal Audit dan Kualitas Audit terhadap Pengungkapan Sukarela

2020 ◽  
Vol 30 (4) ◽  
pp. 861
Author(s):  
Hanny Purnomo ◽  
Yustrida Bernawati
Keyword(s):  
Linear Regression ◽  
Multiple Linear Regression ◽  
Voluntary Disclosure ◽  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Internal Audit ◽  
Sampling Technique ◽  
Voluntary Disclosures ◽  
Purposive Sampling

The purpose of this study is to prove the truth, internal audit, internal audit, and audit quality on voluntary disclosures in companies listed on the Indonesia Stock Exchange for the period of 2016-2018. The sample was selected using a purposive sampling technique to obtain a sample of 100 companies, the hypothesis was taken using multiple linear regression. The results of this study prove the importance of audit audits, internal audits, and audit quality applied to company voluntary disclosures. Keywords: Effectiveness of Audit Committee; Internal Audit; Audit Quality; Voluntary Disclosure.

SEC chief accountant shines spotlight on audit committees

2018 ◽  
Vol 19 (4) ◽  
pp. 4-5
Author(s):  
Stephen G. Stroup
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Securities And Exchange Commission ◽  
Audit Committees ◽  
Corporate Boards ◽  
Securities Litigation ◽  
Content Type ◽  
The Public ◽  
Market Risks ◽  
Baruch College

Purpose To explain and analyze remarks concerning the importance and responsibility of corporate audit committees made by US Securities and Exchange Commission (SEC) Chief Accountant Wesley Bricker before the Baruch College Financial Reporting Conference on May 3, 2018. Design/methodology/approach Discusses Mr Bricker’s remarks in three principal areas: the role of audit committees in clearly understanding non-GAAP measures presented to the public, the attentiveness of audit committees to disclosures regarding changes in market risks, and the importance of independent, diverse thinking on corporate boards, and particularly, audit committee, brought by independent directors as an element of strong corporate governance. Findings The coming months may offer a better indication whether Mr Bricker’s speech is simply a specific point of emphasis from the Office of the Chief Accountant or is perhaps intended to foreshadow a contemplated or ongoing enforcement initiative. Originality/value Expert guidance from experienced lawyer with specialties in SEC investigative and enforcement actions, securities litigation, accountants’ defense, white collar criminal defense and corporate investigations

Voluntary audit committees, auditor selection and audit quality: evidence from Taiwan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mao-Feng Kao ◽  
Min-Jeng Shiue ◽  
Chien-Hao Tseng
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Firm Level ◽  
Content Type ◽  
Audit Firm ◽  
Empirical Results ◽  
Initial Stage ◽  
Auditor Selection ◽  
The Individual

Purpose This study aims to examine the Taiwan setting, where audit partners’ names are presented in the audit report and where audit committee formation is voluntary in the initial stage of audit committee reform. This paper investigates the effects of the formation of voluntary audit committees on the selection of individual audit partners, and, in turn, the audit quality. This contrasts with previous studies investigating the relationship between audit committees and auditor selection at the audit firm level. Design/methodology/approach This paper samples all of Taiwan’s publicly listed firms for the period 2007–2012 and uses Heckman’s (1979) two-stage estimation model to achieve our objectives. Findings Using different characteristics of individual engagement partners as proxies for a higher quality auditor, the main empirical results show that voluntary audit committee formation is positively related to an industry specialist lead partner and a lead partner that has a larger number of clients. In addition, this paper also finds that voluntary audit committee formation has a positive impact on audit quality (proxied by discretionary accruals). The results suggest that the voluntary formation of an audit committee contributes positively to both auditor selection and audit quality. Furthermore, an additional test shows that the main empirical results are robust to a validity threat that firms that have good corporate governance prior to the formation of voluntary audit committees tend to select high-quality audit partners. Originality/value The paper contributes to the audit committee literature in the following ways: this paper takes advantage of Taiwan’s unique setting, where forming an audit committee is not compulsory in the initial stage of audit committee reform, to investigate the voluntary audit committee, auditor selection and audit quality; this paper expands on Abbott and Parker’s (2000) study of audit committee characteristics and auditor selection at the audit firm level by examining this relationship at the individual audit partner level; this paper responds to the call by Church et al. (2008) and DeFond and Francis (2005) who propose more studies on audit quality at the individual engagement partner level.

scholarly journals What Drives Auditor Selection?

2014 ◽  
Vol 8 (1) ◽  
pp. A26-A42 ◽  
Author(s):  
Elizabeth Dreike Almer ◽  
Donna R. Philbrick ◽  
Kathleen Hertz Rupley
Keyword(s):  
Audit Committee ◽  
Selection Process ◽  
Information Source ◽  
Audit Committees ◽  
Policy Makers ◽  
External Auditors ◽  
Public Company ◽  
Selection Decision ◽  
Auditor Selection ◽  
View Management

SUMMARY This study provides evidence on the factors that currently impact audit committee members' selection of external auditors. Using a two-stage approach, we survey and interview public company audit committee members (ACMs), and find evidence that management continues to provide input into the decision process even as SOX regulations require audit committees to take responsibility for the auditor selection decision. ACMs view management as an important information source when they assess the proposing audit partner's reputation for accessibility, timeliness, and ability to liaise with the firm's national technical office, as well as the proposing audit firm's technical and industry expertise. Results of this study can help firms be more competitive in the audit bidding process, inform policy makers when considering whether to impose further audit committee regulations, and aid academics in ensuring an up-to-date understanding of the audit committee's role in the auditor selection process.

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