scholarly journals Audit committee compensation, best practices and audit fees

2019 ◽  
Vol 50 (1) ◽  
Author(s):  
Bum-Jin Park
Keyword(s):  
Best Practices ◽  
Financial Reporting ◽  
Regression Models ◽  
Audit Committee ◽  
Best Practice ◽  
Audit Quality ◽  
Positive Association ◽  
Audit Fees ◽  
High Quality ◽  
The Relationship

Background: It is extremely important that an audit committee (AC) monitors a company’s financial reporting process, and that the committee engages a high-quality auditor to carry this out effectively. Prior research on ACs has paid much attention to the relationship between AC best practices and audit fees (AF). Although compensation is a means of aligning interests between ACs and stakeholders, previous studies have neglected the complementary interaction between AC compensation and compliance with best practices on audit quality.Objectives: The purpose of this study is to investigate how compensation for ACs affects AF, and how the association is moderated by compliance with best practices to capture effective monitoring.Method: The regression models are estimated to verify how the relationship between AC compensation and AF is moderated by AC compliance with best practice. Moreover, the logistic regression models are used to investigate how the relationship between AC compensation and the opportunistic achievement of earnings goals is moderated by AC compliance with best practice.Results: The findings show a positive association between the levels of compensation AC members receive and AF, which is reinforced in firms that have ACs that comply with all best practices.Conclusion: The results suggest that highly paid ACs engage high-quality auditors to complement their function of monitoring management and AC compensation and compliance with best practices are complementary to enhance audit quality. This study thus provides the interesting insights that can be applicable to countries with requirements relating to the compensation schemes for ACs or the formation of the AC.

scholarly journals Effect Of Corporate Governance On The Association Between Book-Tax Differences And Audit Quality: Evidence From Korea

2016 ◽  
Vol 32 (4) ◽  
pp. 1097-1114 ◽  
Author(s):  
Hyunmin Oh ◽  
Sambock Park ◽  
Soonwook Hong
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Interaction Effect ◽  
Audit Quality ◽  
Positive Association ◽  
Audit Fees ◽  
Negative Association ◽  
Significant Positive Association ◽  
Social Proof ◽  
The Relationship

We investigate whether auditors input additional audit hours according to the sizes of book-tax differences (hereinafter BTD) and request additional audit fees for additional audit hours. In addition, the interaction effects of corporate governance on the relationships between BTD and audit hours/audit fees are examined using the total corporate governance (TCG) scores, data from the Korea Corporate Governance Service (KCGS). We predict that since auditors have the incentive and ability to consider BTD, audit hours and audit fees will increase when BTD are larger. Empirical results of our study are as follows. First, BTD and audit hours (LnAH) show a negative (-) association that is not statistically significant. Second, audit fees (LnAF) were shown to increase along with BTD. This can be interpreted as a result of requests for additional audit fees for increased audit risks due to individual firms' BTD. Third, the interaction effect of corporate governance on the relationship between BTD and audit hours (LnAH) showed a positive (+) association, but the association was not statistically significant. Fourth, the interaction effect of corporate governance on the relationship between BTD and audit fees (LnAF) showed a statistically significant positive (+) association. This be understood as meaning that firms with better governance make more efforts for financial reporting in order to maintain their reliability in the market. This study contributes to the literature in several important aspects. First, it empirically demonstrates whether auditors properly reflect BTD on audit risks. Next, our study is analyzes the effects of corporate governance on the relationship between BTD and audit hours/audit fees using the total corporate governance (TCG) scores presented by the Korea Corporate Governance Service (KCGS). Finally, our findings empirically showed social proof function of accounting audits as a strategy to reduce information risks. 

Do Social Ties between External Auditors and Audit Committee Members Affect Audit Quality?

2017 ◽  
Vol 92 (5) ◽  
pp. 61-87 ◽  
Author(s):  
Xianjie He ◽  
Jeffrey A. Pittman ◽  
Oliver M. Rui ◽  
Donghui Wu
Keyword(s):  
Financial Reporting ◽  
Information Transfer ◽  
Audit Committee ◽  
Audit Quality ◽  
Interpersonal Relations ◽  
Social Ties ◽  
Audit Fees ◽  
Firm Valuation ◽  
Agency Conflicts ◽  
External Auditors

ABSTRACT We examine whether social ties between engagement auditors and audit committee members shape audit outcomes. Although these social ties can facilitate information transfer and help auditors alleviate management pressure to waive correction of detected misstatements, close interpersonal relations can undermine auditors' monitoring of the financial reporting process. We measure social ties by alma mater connections, professor-student bonding, and employment affiliation, and audit quality by the propensity to render modified audit opinions, financial reporting irregularities, and firm valuation. Our evidence implies that social ties between engagement auditors and audit committee members impair audit quality. In additional results consistent with expectations, we generally find that this relation is concentrated where social ties are more salient, or firm governance is relatively poor and agency conflicts are more severe. Implying reciprocity stemming from social networks, we also report some suggestive evidence that audit fees are higher in the presence of social ties between an engagement auditor and the audit committee. Collectively, our analysis lends support to the narrative that the negative implications—namely, worse audit quality and higher audit fees—of these social ties may outweigh the benefits.

scholarly journals AN INVESTIGATION ON THE EFFECT OF AUDIT COMMITTEE ON FINANCIAL REPORTING QUALITY IN PRE AND POST IFRS ADOPTION: EVIDENCE FROM MALAYSIAN COMPANIES

2020 ◽  
Vol 8 (2) ◽  
pp. 25-35
Author(s):  
Citrawati Jatiningrum ◽  
Fauzi ◽  
Rita Irviani ◽  
Mujiyati ◽  
Shahanif Hasan
Keyword(s):  
Earnings Management ◽  
Empirical Evidence ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Ifrs Adoption ◽  
Significant Difference ◽  
The Relationship

Purpose of study: This study sought to investigate the effect of the audit committee on Financial Reporting Quality (FRQ), explicitly focuses on the period pre- and post-mandatory IFRS adoption in Malaysia. The Financial Reporting Quality in this study proxied by earnings management. Malaysian. Methodology: The sample study has covered 81 listed companies on Bursa Malaysia, with 567 observations, which examined the time of 2009 to 2015. The relationship was analyzed by statistical multiple regression linear methods and also examined the significance of differences between pre and post IFRS adoption by paired sample t-test. Result: The main finding reveals that the relationship between the audit committee and financial reporting quality after IFRS adoption in Malaysia has more significant. However, empirical evidence showed that the post period of mandatory IFRS evidently no significant difference level of earnings management practice. This result indicates that the IFRS adoption cannot reduce managerial discretion yet and the possibility for EM manipulation for Malaysian companies. Implication/Application: This finding has critical implications for regulators and policymakers, that the consequences of IFRS adoption do not increase the quality of financial reporting when EM practices still continue in the different forms. Novelty/Originality of this study: This study gives empirical evidence that there are differences in relationship level between audit quality and earnings management in the period before and after IFRS mandatory adoption in Malaysia companies.

scholarly journals The Relationship Between Segment-Level Manipulations And Audit Fees

2013 ◽  
Vol 29 (4) ◽  
pp. 1243 ◽  
Author(s):  
David Hurtt ◽  
Bradley E. Lail ◽  
Jason MacGregor
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Accounting Standards ◽  
Positive Association ◽  
Audit Fees ◽  
Risk Assessments ◽  
Net Income ◽  
Bottom Line ◽  
Segment Reporting ◽  
The Relationship

We examine the auditorssensitivity to manipulative financial reporting by investigating the relationbetween audit fees and segment-level manipulations. Segment reporting provides an interestingsetting to examine auditor risk assessments because of the discretion affordedto management under existing regulations. Segment manipulations, a form of classificationsmoothing, are not in violation of accounting standards; nevertheless, thesemanipulations violate the spirit of faithful representation by distorting theperformance of a subset of the reporting unit at the expense of (or to thebenefit) of another subset. Because disaggregatedinformation is used by analysts and investors in bottom-upforecasting, these distortions can influence firm value even though they do notaffect bottom-line net income. Ourmeasure of classification smoothing measurescost shifting between core operating segments and non-core segments to proxyfor segment manipulation. We find thataudit fees, a proxy for the auditors risk assessment, have a positiveassociation with segment-level manipulations. Subsequent analyses suggest that higher auditfees are also due to the additional effort exerted in the presence of segment-levelmanipulations. Further, auditors appearjustified in charging higher fees to clients that engage in segmentmanipulations as we document evidence of a positive association betweenrestatements and segment-level manipulations. Collectively, these results suggest thatauditors are aware of the risk associated with companies that engage in segment-levelmanipulations and auditors respond appropriately by charging higher fees anddoing additional work.

scholarly journals Pengaruh Fee Audit, Tenure Audit, Rotasi Audit Terhadap Kualitas Audit dengan Komite Audit Sebagai Variabel Moderasi pada Perusahaan Sektor Keuangan yang Terdaftar di Bursa Efek Indonesia

Jurnal EBI ◽  
2021 ◽  
Vol 3 (1) ◽  
Author(s):  
Nur Isra Laili
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Empirical Studies ◽  
Sampling Technique ◽  
Financial Sector ◽  
Audit Fees ◽  
Quality Audit ◽  
Insignificant Effect ◽  
The Relationship

This test aims to test the effect of audit fees, audit tenure, audit rotation on audit quality with the audit committee as a moderating variable (empirical studies on financial sector companies listed on the Indonesia stock exchange for the financial sector 2012-2016) The population in this study was 71 companies. The sampling technique used was purposive sampling and the number of samples was 23 companies. The model used in this study is Moderated Regression Analysis using panel data and processed using the Eviews 9.5 application. Results: Audit fees have a positive and insignificant effect on audit quality, audit tenure has a negative and insignificant effect on audit quality, audit rotation has a positive and significant effect. on the quality of the audit. The audit committee has a positive and significant effect on the relationship between audit fees and audit quality, the audit committee has a negative and insignificant effect on the relationship between audit tenure and audit quality, the audit committee has a positive and insignificant effect on the relationship between audit rotation and audit quality. This shows that the audit committee only mediates the relationship between the audit fee variable and audit quality.

Audit committee and financial reporting quality: the moderating effect of audit quality

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sana Mardessi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Reporting Quality ◽  
Moderating Effect ◽  
Real Earnings Management ◽  
Financial Reporting Quality ◽  
Content Type ◽  
The Relationship

Purpose The purpose of this study is to address the impact of audit quality on financial reporting quality proxied by real earnings management. To further clarify the mentioned links, this study empirically assesses the moderating effect of audit quality. Design/methodology/approach The study is based on a sample consisting of 90 non-financial companies that are listed in the Amsterdam stock exchange in AEX all share index over the 2010–2017 period. This study applies a quantitative approach and secondary data as the main source of information for analysis. This paper performs an ordinary least squares regression to examine the moderating effect of audit quality on the relationship between financial reporting quality. Findings Empirical findings demonstrate that corporate governance mechanism, mainly independence members, financial expert and audit committee size has a statistically significant relationship with real earnings management. However, the effect of audit committee meetings on real earnings management is not significant. There is also evidence that audit quality moderates the audit committee – real earnings management links. Originality/value This study extends the existing literature by examining the moderating effect of audit quality on the relationship between financial reporting quality proxied by real earnings management in the Dutch context.

Client Importance and Earnings Management: The Moderating Role of Audit Committees

2011 ◽  
Vol 30 (3) ◽  
pp. 125-156 ◽  
Author(s):  
Vineeta D. Sharma ◽  
Divesh S. Sharma ◽  
Umapathy Ananthanarayanan
Keyword(s):  
Best Practices ◽  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Positive Association ◽  
Auditor Independence ◽  
Economic Importance ◽  
Audit Committees ◽  
Inside Ownership

SUMMARY This study provides empirical evidence on how the association between the economic importance of a client to the auditor and earnings management is moderated by the audit committee. We employ city office-level client importance fee-based measures, both performance-adjusted discretionary total and current accruals as proxies for earnings management, and a measure of audit committee best practices. We document a positive association between client importance and our two proxies for earnings management. This association is stronger for income-increasing earnings management. However, the association between client importance and earnings management is more pronounced when the audit committee does not meet best practices. We infer that the economic importance of a client appears to threaten auditor independence and thus the quality of financial reporting, but only when the audit committee exhibits characteristics associated with the provision of weak oversight. We also find that the association between client importance and earnings management is conditional on inside ownership, growth, leverage, and firm size, which are moderated by the audit committee. This study is the first to demonstrate that audit committees can moderate threats to auditor independence thus protecting the quality of financial reporting. The study discusses potential implications for policy making and empirical research.

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)

The association between abnormal audit fees and audit quality after IFRS adoption

2016 ◽  
Vol 24 (3) ◽  
pp. 252-271 ◽  
Author(s):  
Soo-Jung Jung ◽  
Bum-Joon Kim ◽  
Ju-Ryum Chung
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Audit Fees ◽  
Discretionary Accruals ◽  
Content Type ◽  
Discretionary Accrual ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to examine how the relationship between abnormal audit fees and audit quality changed after adoption of the International Financial Reporting Standards (IFRS) in Korea. Design/methodology/approach Using empirical data collected over the period from 2008 to 2013, this study analyzes the association between abnormally high/low audit fee and audit quality. This study uses linear regression to test the hypothetical relation using discretionary accrual as a proxy for audit quality. Findings This study finds that there exists no significant relationship between abnormally high audit fees and audit quality measured by the magnitude of discretionary accruals in the pre-IFRS adoption period. However, the relationship between abnormally high audit fees and the magnitude of discretionary accruals turns to be positive in the post-IFRS adoption period. These finding suggests that the IFRS enables some clients to engage more discretion in the choice of discretionary accruals and auditors charge higher audit fees in return for allowing the discretion for such clients. Practical implications This study provides insight to regulators of the need to review carefully the financial statements of firms with abnormally high audit fees, and to investors to be more cautious when using financial information about these firms. Originality/value To the best of authors’ knowledge, this is the first study to assess IFRS impact on audit fee-quality relation. Also, unique Korean audit market with intensifying competition and discounting audit fee provides interesting setting to review the impact of abnormal audit fee on audit quality.

scholarly journals The relationship between corporate governance, internal audit and audit committee: Empirical evidence from Greece

2016 ◽  
Vol 14 (1) ◽  
pp. 569-577 ◽  
Author(s):  
George Drogalas ◽  
Konstantinos Arampatzis ◽  
Evgenia Anagnostopoulou
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Internal Audit ◽  
Audit Process ◽  
Athens Stock Exchange ◽  
The Relationship

Internal audit has been acknowledged as the main driver of corporate disclosure which aims to increase the quality of financial information, to ensure the transparency in financial reporting and to increase the confidence between managers and shareholders. The need for developing strong governance structures has led many researchers to examine the new framework of corporate governance and to explore its relationship to the internal audit process. Regarding Greece, there is a lack of research evaluating the relationship between corporate governance and internal audit. This study examines the above relationship in companies listed in the Athens Stock Exchange. In the present research, internal audit is examined in terms of audit quality and the consulting role of internal audit, in order to highlight the new management-oriented and value adding scope of internal audit. Data was collected via a survey questionnaire methodology and was analyzed using regression analysis. The results show that corporate governance is positively associated to the consulting role of internal audit, to internal audit quality and to the audit committee.

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