Financial reporting quality, audit fees and risk committees
ISSN: 1321-7348
Article publication date: 30 May 2020
Issue publication date: 5 August 2020
Abstract
Purpose
The purpose of this paper is to examine the association between the existence of a risk committee (RC) in a firm and financial reporting quality. We also investigate whether having an RC has an effect on audit pricing. We argue that the existence of an RC in a firm contributes to higher financial reporting quality and this, eventually, affects audit pricing.
Design/methodology/approach
This study uses two different proxies for RC measures and investigates the impact on financial reporting quality and audit pricing. Multivariate regression analysis and propensity score matching techniques are both applied to data from the Australian Stock Exchange's listed companies for the years 2001–2013.
Findings
The results indicate that the existence of an RC reduces the discretionary accruals; this means the financial reporting quality improves when RCs are in operation. Our findings also indicate that the existence of an RC increases audit fees.
Practical implications
The findings from this study will be beneficial to the regulatory authorities responsible for improving the compliance of corporate governance (CG). An RC can serve as a risk-mitigating tool in the investment decision-making process. Finally, the results are beneficial for the development of best practices in CG by promoting the existence of an RC.
Originality/value
This study goes beyond the traditional focus on CG as we use the existence of an RC as an indicator of better governance practices to mitigate financial and non-financial risk factors. To the best of our knowledge, this paper is among the first to investigate the consequences for firms operating with RCs. This issue has implications for investors, auditors, directors and regulators.
Keywords
Acknowledgements
The authors acknowledge the thoughtful input of two anonymous referees. An earlier version of this manuscript was presented to the 28th Asian-Pacific Conference on International Accounting Issues 2016, and the authors sincerely appreciate the comments and feedback from the conference reviewer and participants. The authors are thankful to Wei-Guo Zhang, Jahangir Ali and Yuen Teen Mak for their constructive comments and suggestions.
Citation
Bhuiyan, M.B.U., Salma, U., Roudaki, J. and Tavite, S. (2020), "Financial reporting quality, audit fees and risk committees", Asian Review of Accounting, Vol. 28 No. 3, pp. 423-444. https://doi.org/10.1108/ARA-01-2019-0017
Publisher
:Emerald Publishing Limited
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