In addition to the characteristics of auditcommittee chairs, we also employed a composite variable to identify audit committees that conform to all the recommendations in terms of size, independence, meeting frequency and expertise (ACE). A total of 74 percent of the audit committees in our sample satisfy all four of the recommended characteristics. We have also captured the proportion of independent non-executive directors on the board of directors because the current regulation requires firms to disclose such directors in the annual report; we find that 48.3 percent of board members are independent. The average ownership level of executive directors in our sample is 4.2 percent, with a median ownership level of only 0.24 percent. The descriptive statistics of the other control variables suggests that 95 percent of all audits are undertaken by a Big 4 auditing firm; block holders hold, on average, 38 percent of total shares; the mean ROA of firms is 9.08 percent; the gearing levels are, on average, 19.28 percent; the stock and receivable to total assets ratio stands at 27.28 percent; and 58 percent of the firms were involved in an acquisition.
In order to strengthen the auditcommittee functions, companies are required to report the percentage of meeting attendance of the auditcommittee member in the audit committee's performance report (BAPEPAM-LK, 2012). Also, attendance to auditcommittee meetings is important to its effectiveness in the financial reporting of organizations (Rickling, 2014). Auditcommittee members with expertise in accounting knowledge can facilitate the committee in monitoring the financial reporting process more effective (Sun et al., 2014). Particularly, auditcommittee is tasked to supervise the financial reporting process and as such, members with accounting and finance background meet more often to meeting issues of financial reporting so that it can withstand the practice of earnings management (Baxter & Cotter, 2009). In a nutshell, effectiveness of auditcommittee can ensure financial reporting that is free of misstatement, resulting in reduce information asymmetry and enhanced earnings quality, and the building of better investors’ confidence.
The study examines 4,490 US firm-years and 445 New Zealand firm-years from the years 2004 to 2008. The overall results suggest that the prevalence of independent audit committees and expertise has increased over the years in both countries. Therefore, no significant effect is found for the association between audit fees, and auditcommittee independence and auditcommitteeexpertise, except for the negative association for auditcommitteeexpertise in 2004. The result for institutional ownership is negative and significant for the US, whereas in New Zealand it is not significant. The likely reason for this difference is that financial institutions hold high levels of shares in US companies, whereas, in New Zealand the shareholdings of financial institutions is relatively small. Further analysis seems to suggest that, in New Zealand, corporate ownership in firms plays a stronger role in the audit fee setting process than institutional ownership.
Insights into the Malaysian empirical evidence suggest that there are two streams of literature. One stream exclusively examines the effect of the company and auditor specific factors on audit report lag (see Abidin & Ahmad- Zaluki 2012; Ahmad & Kamarudin 2003; Che-Ahmad & Abidin 2008; Yaacob & Che-Ahmad 2012). This research documents the significant effect of these factors on the audit report lag. Although this stream of literature considers the important variables within the audit report lag model, it fails to find consistent results, nor does it consider the recent development of the audit report lag literature. The other stream mainly focuses on the effect of corporate governance (see Abdullah 2006; Ishak, Sidek & Rashid 2010; Ismail et al. 2012; Mohamad-Nor et al. 2010; Nelson & Shukeri 2011; Wan-Hussin & Bamahros 2013; Puasa et al. 2014). Although this stream of research suffers from significant flaws relating to the methodology, it provides an insight into recent developments in the literature pertaining to audit report lag. It finds that audit report lag is affected by board characteristics, auditcommittee characteristics and ownership characteristics. However, this literature reports that auditcommittee financial expertise has little effect on audit report lag.
the improvement, reliability and quality of financial statements to restore, safeguard, and enhance public confidence in financial reports. Proponents of agency theory argue that ownership and control separation lead to moral hazard problems, in which agents act to obtain personal benefits at the expense of shareholders. In curtailing such behavior, effective control of the board of directors would greatly help. The effectiveness of the board monitoring depends upon, among others, the sub-committees of the board (He and Yang, 2014). Also Dechow and Skinner (2000) and Shi and Zhou (2012) argue that a board audit sub-committee and the financial expertise of its members affect the way managers manipulate earnings to achieve corporate or personal benefits. Similarly, Dechow et al., (2010) posits that the ability to adequately supervise the activities and constrain opportunistically managed earnings lies with effective internal corporate governance (CG) mechanisms. Internal governance mechanisms involve among others, the formation of an independent auditcommittee (AC) that would supervise the activities of managers and ensure strict compliance with the financial regulations. However, the effectiveness of the committee depends on its composition and the expertise of its members. Also, the impact of high status (Hayes, 2014), industry experience (He and Yang, 2014), accounting expertise (Carol et al., 2014), and accounting and industry experts (Cohen et al., 2014) have been subject to conflicting findings. The inconsistencies in results and other governance variables unused by previous studies such as the financial and accounting expertise of AC members and AC share ownership that was among the elements of the revised Nigerian Code of CG (CCG) (Securities and Exchange Commission, 2011) need to be investigated. Previous studies have examined AC characteristics on an industry basis. This study, however, examines whether changes in AC characteristics (share ownership and accounting/financial expertise) after the NGSEC CCG 2011 have a positive association with the quality of financial reporting in Nigerian non-financial listed firms. It seeks to answer whether AC financial expertise, AC independence, and proportion of members share ownership affect the quality of financial reporting in Nigerian non-financial listed firms? This study utilized non-financial firms of Nigeria’s emerging and non-Western economy in examining the relationship between the selected AC variables and their influence on the financial reporting quality (FRQ).
Firstly, some interviewees related the existence of the auditcommittee and their contribution to it through compliance with the requirements for, or a fulfilment of public expectations of, formal auditcommittee settings. These interviewees explained the way in which they perceived the auditcommittee objectives through: (1) presenting their independent status and financial expertise as required by rules and regulations regarding auditcommittee composition; (2) the recognition of their independent status and financial expertise by their organisations; and (3) emphasising the development and disclosure of auditcommittee charters. In contrast to this, some interviewees tended to justify the duties of audit committees as a part of performing their directorship duties. This research has documented a diverse range of activities identified by auditcommittee members as comprising their daily lives in audit committees. By classifying these activities into board-delegated tasks and committee formalities, it can be asked whether an auditcommittee can exist in substance without the committee formalities. The board- delegated tasks are duties of the board, with or without an auditcommittee. The committee formalities merely formalise the performance of the delegated tasks, or make the performance of the delegated tasks more visible, by documenting them in an auditcommittee meeting agenda and/or minutes. This view reflected interviewees’ accounts in situations when the boundary between the auditcommittee and the board of directors was blurred. It was noticeable that some interviewees deliberately blurred such boundaries, in order to justify their belief that substantive auditcommittee activities were within the scope of, rather than in addition to, their perceived general directorship roles. Interviewees also provided evidence that ‘experience’ helped them the most in performing their auditcommittee roles.
Licensed under Creative Common Page 119 This broader definition of auditcommittee financial expertise has given rise to a stream of academic research investigating the association between the type of financial expertise on the auditcommittee and the quality of financial reporting (e.g. Krishnan 2005, Carcello et al. 2006, Defond et al. 2005, Bédard et al. 2004, Xie et al. 2003). The findings of these studies are consistent with the expectation that an auditcommittee member with financial/or accounting expertise enhances committee performance. However, Rich (2009) found no empirical evidence of a change in financial reporting quality following the appointment of an auditcommittee accounting expert. The author argued that firms with strong governance that appoint an accounting expert into their audit committees will experience larger post-appointment improvements in reporting quality than do firms with weak governance. The strong governance firms here are defined by more income-decreasing discretionary accruals, larger increases in earnings response coefficients, and higher quality accruals. Further, Carcello et al. (2006) argue that firms with strong corporate governance may exert stronger control over the firm‟s financial reporting decisions, irrespective of the activities of the auditcommittee; thereby reducing the impact of auditcommittee accounting expertise on the firm‟s reporting quality. But DeFond, Hann and Hu (2005) opined that auditcommittee‟s responsibilities often require significant accounting sophistication: in that they involve assessing the reasonableness of complex financial matters such as the company‟s accounting reserves, and management‟s handling of proposed audit adjustments suggested by the external auditors. Therefore, auditcommittee should consist of members with accounting or financial background who can ask relevant questions and thus decrease the possibility of earnings management and the errors in financial reporting; which ultimately increase the quality of financial reports. Therefore, in this study, the effect of accounting expertise on financial reporting is examined through the following hypothesis:
A company’s AC includes at least three members. The AC function is to monitor its board of directors to confirm that it operates well. There are various characteristics associated with AC’s effects [31, 10, 6,33]. Bedard et al.  find a significant association between earnings management and auditcommittee governance practices. Goodwin et al.  found that the existence of an AC, more frequent committee meetings, and increased use of internal audits are related to higher audit fees. These findings are consistent with an increased demand for higher quality auditing by ACs and by firms that make greater use of internal audits. Chen and Zhou  finds that firms with effective audit committees are associated with less earnings management and less audit fees, and are less likely to have modified opinions and delayed filings. Chien et al.  found that the presence of a committee and the committee’s specific qualities of independence, financial expertise, and increased activity positively correlate with reduced frequencies of internal control problems. Ika et al.  suggested that AC effects are likely to reduce financial reporting lead times. In addition,
based on 150 NZX listed companies, for the financial years ending in 2004 and 2005. In his additional analysis, the measurements of auditcommittee independence and expertise adopted in the main analysis were altered according to the NZX’s recommendations to allow a further investigation into the relationships between aggressive earnings management and auditcommittee size, independence and expertise per the NZX’s recommendations. He found that aggressive earnings management is negatively related to audit committees that have a majority of independent directors and at least one financial expert. This study extends Kuang (2007)’s study by recognizing and examining the moderating effect of auditcommittee diligence on the likelihood of earnings management by New Zealand issuers. Furthermore, this study differentiates itself from Kuang (2007)’s study by measuring earnings management as a continuous variable, rather than categorizing earnings management into only two groups, which are aggressive earnings management and unaggressive earnings management. Measuring earnings management as a continuous variable has an advantage over using a binary measure, because it retains the variance in earnings management that would otherwise be removed as a result of grouping earnings management into two broad categories. In this study, a continuous variable of earnings management is used in an effort to shed new light on the relationships between earnings management and auditcommittee characteristics.
data about industry membership for all of our sample firms, while we were only able to obtain operating cycle data for 284 of our sample firms. We rerun this model controlling for full board independence, expertise, activity and size. Several of these variables are significantly positively correlated with their corresponding auditcommittee measures and that is why we exclude them from equation 6. However, some of these board variables are significantly associated with our EQ measures and we therefore attempt to control for their impact by including them in a sensitivity test of this model.
In another study, a pessimistic relation between auditcommittee independence and earnings management is observed by Klein (1998), and this finding of the study is similar with the idea that a paucity of independence impairs the ability of boards and audit committees to superintend management. In another study, DeZoort et al. (2002) drew a framework universal four-dimensional (composition, resources, authority and diligence) with respect to benefits and effectiveness of audit committees. According to the study, while the composition reflects independence, the other three relate to the inputs to the corporate governance processes adopted by the firms. From the above, it can be determined that the key purpose of the board’s auditcommittee is to inspect the financial reporting process of a firm. There is a remarkable literature that links independence, size and other characteristics of the board of directors and audit committees in order to improved firm performance and value (Klein, 1998). Increased level of independence and expertise on board and audit committees increase firm value (Chan and Li, 2008). The common wisdom is that the level of independence of auditcommittee members is closely related with improved monitoring of the financial reporting process (Bronson et al., 2009). Independence is often heralded as the single most important board and auditcommittee characteristic; however, the evidence is somewhat mixed. Bhagat and Black (2001) find no relationship in their study between the ratio of outsider versus insider board members and firm performance. Kirkpatrick (2009) finds that independent members on the audit committees contribute to a higher market value.
The paper examines the effects of corporate governance characteristics on audit report lag (ARL) of listed banks in Nigeria. Fourteen banks were used in the study. The study covers a 5-year period from 2008 to 2012. Findings of the study based on robust ordinary least squares model indicate that audit quality represented by the Big 4 firms has a significant impact on ARL. Board meetings, board size, total assets and board gender have significant positive associations with ARL. However, the study did not find a significant relationship between board expertise, risk committee size and auditcommittee size on ARL. Generally, shareholders should maintain the use of Big 4 so that report is presented at the right time to enhance confidence of the stakeholders as well as regulators. The current study dwelled on few corporate governance characteristics of the listed banks. Other potentials variables such as Company complexity, ethnicity, leverage and IFRS complexity is not included and beyond the scope of this study. Their inclusions could have given clearer picture of the determinants of ARL in Nigerian listed banks.
The purpose of this study is to examine the effectiveness of auditcommittee in constraining earnings management after the revised MCCG among listed firms on Bursa Malaysia. Specifically, the study explores how auditcommittee impacted earnings management before and after the revision of MCCG in 2007. This study is important because it is among the pioneer empirical evidences to compare the effectiveness of auditcommittee characteristics in mitigating earnings management between the pre and post revised MCCG periods. The sample for this study was drawn from 280 companies listed on Bursa Malaysia in 2005, 2006, 2008 and 2009. The auditcommittee characteristics include size, independence, expertise, frequency of meetings and activity disclosure. The discretionary accrual was estimated using the Modified Jones Model (1995) which was used to proxy for earnings management. The empirical results on audit committees play an important and effective role in reducing earnings management after the revision of MCCG. After controlling for firm size, board size and leverage, the study found that auditcommittee size and auditcommittee that had meetings with external auditor without the presence of executive directors at least twice a year showed a significant association with earnings management. Overall, these findings called for further examination into the roles of auditcommittee in mitigating earnings management.
rules. The reason is simple because the results of rules inspection report will be in the form of more professional legal statement. Hence, a legal auditor in most companies does not yet exist since the requirements of this profession includes becoming expertise in the field of law (lex specialis) in order to be right on target in carrying out their duties and responsibilities (the right men on the right place). According to Article 121 paragraph 1 of the Constitution of Limited Liability Companies may establish an "AuditCommittee". It is related to Article 70 paragraph 1 of UUBUMN and be further clarified in the Decree of Minister of BUMN Number: Kep-10/MBU/2012 date 24 of July 2012 concerning supported members of the Commissioners Board/ BUMN Article 2 paragraph 2 that is a limited liability company can form an auditcommittee. The committee is formed to assist in carrying out the supervisory duties and functions ————————————————
This research study makes three significant contributions to the literature on AC effectiveness, ownership structure, and discretionary accruals. Firstly, this research study confirms the view that an AC independence, financial expertise, and active members effectively mitigate EM practices in PSX listed companies. The feature of independence and expertise an auditcommittee possibly improves the financial reporting quality. Our study’s findings support the recent amendment made in Pakistan Corporate Governance Code which related to auditcommittee independence and expertise. Secondly, to the best of the researchers’ knowledge, this research study is the first research paper that is made in Pakistan on auditcommittee effectiveness and EM after the recent-past amendment which is made in December 2017 in Pakistan Corporate Governance Code. Thirdly, this research study is unique in nature in collectively checking auditcommittee attributes with ownership structure on EM (discretionary accruals) and expanding the literature on ownership structure, AC, and discretionary accruals.
The performance of a company can be determined by several factors like corporate governance and risk management. Adequate corporate governance will create a good corporate climate that makes company able to achieve its maximize profits. The purpose of this study is to examine the influence of the size of audit committees, auditcommitteeexpertise, institutional ownership, corporate performance and its impact on executive compensation. This study uses purposive sampling method. The research sample is 86 of manufacturing companies listed on the Indonesian Stock Exchange from 2013 to 2015. Data analysis method used structural equation modeling (SEM) with WarpPLS 6. The results showed that the number of auditcommittee personnel and audit committee's expertise had no effect on company performance. However, institutional ownership affects the performance of the company. Furthermore, company performance does not contribute significantly to executive compensation. This study is useful for corporate internal system and gives policy makers a better understanding of corporate performance from management perspective. Furthermore, this paper contributes to the literature by identifying the role of auditcommittee characteristics, institusional ownership, and executive compensation in company performance.
Xie et al (2001) investigated the roles of the board and auditcommittee on earnings managment. Using a sample of 282 firm-year observations from the S&P 500 index of each year of 1992, 1994 and 1996, they find that active committee of experienced members, that is members with some financial expertise and/or corporate background is associated with reduced level of discretionery accruals. The result of this sudy may not be consistent with the findings of similar research in a less developed economy like Nigeria. Also, Chtourou et al. (2001) investigate the impact of of corporate governance on earnings managment in U.S. firms. Using a sample drawn from the population of U.S. firms that appear on Compustat 1996, they find that financial expertise, independent directors and active committee (proxied by board meetings) are inversely related with discretionery accruals. The study uses chi-square as a tool for data analysis, which is a less effective tool for establishing cause and effect relationship.
The board committee in the case of reliance comprises of the auditcommittee, shareholders'/ investors' grievance committee, remuneration committee, CG and stakeholders' interface committee, finance committee and the health, safety and environment committee. These committees seem to be playing a role very similar to those of HUL's. Duties and authority of committees in both the companies appear to be very similar and such a repetition is unwarranted. RIL has a finance committee to review the company's financial policies, strategies and capital structures. The corporate management committee of HUL seems to have been rechristened as the CG and stakeholders' interface committee (CGSI) in the case of reliance. The CGSI committee periodically identifies what reliance calls as the 'Competency gaps' and evaluates potential candidates for board appointment. It is interesting to note that the CGSI committee also considers candidates recommended by shareholders. Board members are encouraged to attend training programs/ discussion/ seminars forms to understand topical CG issues and make suggestions for improvement. The CGSI committee assists the board in determining the optimum board size.
The role of effective board mechanism as key components of corporate governance has become an issue of global significance and has received new urgency due to various corporate scandals and failure. This study seeks to examine the impact of board mechanisms (auditcommittee size, auditcommittee composition, board size, and board composition) on profitability based on the annual reports of nine listed banks in Kenya in the period 2008 to 2012. Using multiple regression as a method of estimation the results of this study reveal that board size, board composition, auditcommittee size and auditcommittee composition have no effect on bank profitability in the selected sample. The study suggests that banks with effective board mechanisms may improve financial performance depending on the measure used although not all board mechanisms are significant. The study is significant because it can aid the policy makers in the formulation of policies, which can be effectively implemented for better and easier regulation of banks. The findings of the study have significant managerial and theoretical implications.
The frequency of annual meetings of the auditcommittee is a potential indicator of the effectiveness of the auditcommittee (Menon and Williams, 1994). A greater number of meetings is considered as a good indicator of the auditcommittee to better achieve their goals (DeZoort and al. 2002; and Bedard and Gendron, 2010). However, it is important to note that based on the agency theory, the number of meetings can be beneficial to the company only if the benefits obtained from an additional meeting excess of the incurred costs. Moreover, the literature does not recommend a typical number of meetings. For instance, in the United States, the audit committees must meet at least four times a year (Stewart and Munro, 2007). This number of frequency can improve the relevance of earnings, detect fraud (Beasley and al., 2000) and improve the performance. Then, based on previous studies we state the following hypothesis: