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.

The Effect of Audit Quality and Audit Committees on Goodwill Impairment Losses

2015 ◽  
Vol 5 (1) ◽  
pp. 48 ◽  
Author(s):  
Nagham Al Dabbous ◽  
Naser Abughazaleh ◽  
Osama Al-Hares
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Audit Committee ◽  
Audit Quality ◽  
Audit Committees ◽  
Policy Makers ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Reporting Incentives ◽  
Mandatory Adoption

Using a sample of 528 firm-year observations, drawn from the top 500 U.K. listed firms, this study examines the effect of audit quality and audit committee (hereafter: AC) characteristics on goodwill impairment losses recorded following the mandatory adoption of IFRS 3 “Business Combinations”. The hypothesis investigated is that managers disciplined by effective ACs and auditors are less likely to act opportunistically but instead use their accounting discretion to convey their private information resulting in the recognition of higher amounts of existing goodwill impairments that better reflect the underlying performance of the firm. Shareholders will not expect ACs and auditors to constrain accounting choices (e.g., goodwill impairments) used credibly by managers. After controlling for economic factors and financial reporting incentives, empirical results reveal that auditor and AC characteristics do not seem to have a significant effect on the recognition of goodwill impairments. Although ACs are expected to act as a monitoring device, the monitoring incentives of AC directors may be hampered by the joint board responsibility for the quality of financial reporting. The results also suggest that the formation of ACs does not always necessarily imply effective monitoring as ACs may fall short of doing what are generally perceived as their duties (Sommer, 1991). These results may be of interest to standard setters, regulators and policy makers.

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 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.

The impact of audit committee, CEO, and external auditor quality on the quality of financial reporting

2019 ◽  
Vol 20 (2) ◽  
pp. 263-279 ◽  
Author(s):  
Abdulaziz Alzeban
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Positive Impact ◽  
Policy Makers ◽  
Content Type ◽  
Mediation Analyses ◽  
Auditor Quality ◽  
External Auditor ◽  
The Impact

Purpose This paper aims to explore the influence of corporate governance (CG) components on the quality of financial reporting (QFR). The components investigated are the Audit Committee (AC), CEO and external auditor quality. The study also examines whether the AC mediates the effects of other components of CG on the QFR. Design/methodology/approach Data were collected from 386 listed companies in four European countries for the period 2015-2017. The QFR was measured using two proxies, discretionary accruals and accruals quality. Firstly, an OLS regression model was estimated to measure the effects of the three variables investigated on the QFR, and to determine which of these variables had the greatest influence in this relationship. Secondly, several mediation analyses were performed to test whether the AC mediates the effects of the CEO, and external auditor quality on the QFR. Findings The findings reveal that each of these three components has a positive impact on the QFR, but that the AC has the greatest effect in this respect. The findings also indicate that the AC mediates the effect of the CEO on the QFR. Alternative tests and different measures for the variables confirm the robustness of the results obtained. Practical implications Significant implications are provided for regulators and policy-makers. Findings of the present study help regulators and policymakers to pay more attention to the enforcement of AC policies, and the appointment of AC members. Further, the results are helpful to policy-makers concerned with improving CG, and who need evidence of the role of high QFR in this matter. Originality/value The findings provide insights into the effect of CG on QFR, and into the most influential component in this relationship; hence, they make a valuable contribution to the literature. They also contribute to the topic of mediations analysis in CG research, providing additional evidence that the AC mediates the effects of the CEO, and external auditor quality on the QFR.

scholarly journals The Substitution Role of Audit Committee Effectiveness and Audit Quality in Explaining Audit Report Lag

2019 ◽  
Vol 4 (1) ◽  
pp. 28-37
Author(s):  
Husaini Husaini ◽  
Saiful Saiful ◽  
Fitrawati Ilyas
Keyword(s):  
Agency Theory ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Multivariate Regression Analysis ◽  
Jel Classification ◽  
Audit Committees ◽  
Audit Report ◽  
Audit Reports ◽  
The Relationship

Objective - This study aims to examine the relationship between audit committee effectiveness on Audit Report Lag (ARL), and the moderating effect of audit quality on the relationship between audit committee effectiveness and ARL. Methodology/Technique - 109 non-financial Indonesian listed companies are examined from 2012 to 2016. The data is analysed using multivariate regression analysis. Findings - The results show that audit committee effectiveness negatively affects ARL. This indicates that an effective audit committee can accelerate the delivery of audit reports. The results on the interaction between audit committee effectiveness and audit quality also negatively affects ARL. These results indicate that audit quality strengthens the influence of audit committees on the timeliness of financial reporting by reducing audit report lag. Novelty - The results show that there is a relationship of substitution between audit committee effectiveness and audit quality (Big-4) on ARL. The results of this study are consistent with agency theory which states that the implementation of corporate governance, such as an effective audit committee and audit quality, can improve the quality of financial reports. Type of Paper Empirical. Keywords: Audit Committee Effectiveness; Audit Quality; Audit Report Lag; Agency Theory. JEL Classification: M42, M41. DOI: https://doi.org/10.35609/afr.2019.4.1(5)

Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

2017 ◽  
Vol 92 (6) ◽  
pp. 187-212 ◽  
Author(s):  
Seil Kim ◽  
April Klein
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Research Question ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Difference In Differences ◽  
Listed Firms ◽  
Sarbanes Oxley ◽  
Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

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 Establishing the relationship between an effective audit committee and infusion of a good control environment

2017 ◽  
Vol 13 (3) ◽  
pp. 52-58 ◽  
Author(s):  
Zandile Virtue Dlamini ◽  
Emmanuel Mutambara ◽  
Akwesi Assensoh-Kodua
Keyword(s):  
Audit Committee ◽  
Good Governance ◽  
Good Control ◽  
Working Environment ◽  
Audit Committees ◽  
Control Environment ◽  
Public And Private ◽  
Control Structures ◽  
Effective Performance ◽  
The Relationship

Audit Committees are a vital component of accountability and good governance for any serious organisation and have progressively been perceived as an integral part of modern control structures and control practices in both the public and private sectors. However, Audit Committees can only discharge such gigantic responsibilities in a conducive environment to provide its effective performance of certain key functions in the areas of oversight of risk management, reporting, and internal controls. Nonetheless, the enablement of such conducive environments has become a challenge to many Audit Committees. It is against this background that this study investigates the relationship between an effective audit committee and infusion of a good control environment. The study used structured and unstructured questions to investigate population comprising standing committee members and Audit Committee members. Thus this study made use of a mixed methodology to collect quantitative data as well as reviewing audit documents, such as, the Audit Committee Charter and minutes of meetings in order to ascertain the environment under which such august practices are performed. The outcome concludes that the Audit Committee which was selected for the study has the good working environment.

scholarly journals Corporate Social Responsibility, Audit Committee Expertise, and Financial Reporting: Empirical Evidence from Korea

2021 ◽  
Vol 13 (19) ◽  
pp. 10517
Author(s):  
Haeyoung Ryu ◽  
Soo-Joon Chae ◽  
Bomi Song
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Financial Reporting ◽  
Audit Committee ◽  
Earnings Quality ◽  
Audit Committees ◽  
Accounting Expertise ◽  
Corporate Social

Corporate social responsibility (CSR) involves multiple activities and is influenced by the cultural and legal environment of the country in which a firm is located. This study examines the role of audit committees’ (AC) financial expertise in the relationship between CSR and the earnings quality of Korean firms with high levels of CSR. Using a multivariate analysis, it investigates whether the ACs that include members with accounting expertise, finance expertise, or supervisory expertise individually affect a firm’s decision making. It also examines how ACs with diverse expertise contribute toward improving the financial reporting quality of firms with high levels of CSR. The results demonstrate that when there is a certified accountant in the AC of a firm that practices CSR based on ethical motivation, the earnings management through discretionary accruals is more strictly controlled. This is more effective when the AC comprises members with accounting and non-accounting expertise. This finding implies that the AC plays a positive role in improving the accounting information quality of firms with CSR excellence. Moreover, while the role of accounting experts in the AC is important for maintaining high earnings quality, combining other types of expertise creates synergy.

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