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1 – 10 of over 14000Fang Sun, Xiangjing Wei and Yang Xu
The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers' financial…
Abstract
Purpose
The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers' financial reporting quality, which is proxied by loss reserve error.
Design/methodology/approach
The authors' hypotheses are tested using multivariate analysis where the loss reserve error is the dependent variable, and audit committee independence, and four types of audit committee financial expertise (accounting, finance, supervisory, and insurance expertise) are the testing variables.
Findings
It is found that accounting, finance, and insurance financial expertise are associated with more accurate loss reserve estimate. In contrast, a supervisory financial expertise and an independence audit committee are not found to be associated with better loss reserve quality.
Research limitations/implications
The sample includes publicly‐held property‐liability insurers. Although the results from publicly‐held insurers could provide a good laboratory for such investigation in all insurers, they might be limited due to different organization structures of public vs private insurers.
Practical implications
The implications of the study are important for the SEC and NAIC. The results suggest that the requirements on the audit committee financial expertise would be necessary, even in highly regulated industry, such as property‐casualty insurance.
Originality/value
The paper contributes to the extant literature by studying audit committee characteristics in the insurance industry. It also contributes to the extant literature on audit committee effectiveness by decomposing the financial expertise into four types of financial expertise (accounting, finance, supervisory, or insurance expertise) and investigates which (if any) of these four types of expertise really drives the improvement of loss reserve quality.
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Dina El Mahdy, Jia Hao and Yu Cong
The purpose of this study is to examine the association between audit committee expertise and asymmetric information in the US equity market.
Abstract
Purpose
The purpose of this study is to examine the association between audit committee expertise and asymmetric information in the US equity market.
Design/methodology/approach
The authors use measures of information asymmetry for 705 US firms (5,260 firm-year observations) over the period from 2007 to 2018, and use the theory of expertise (Ericsson and Smith, 1991) to examine the association between audit committee financial expertise and information asymmetry. The authors use multiple econometric approaches such as firm fixed-effect regression and two-stage ordinary least squares regression to control for possible endogeneity and reverse causality and find that the results remain the same.
Findings
The authors find that the existence of an audit committee with financial expertise is negatively and significantly associated with information asymmetry. The authors further provide empirical evidence through which audit committee financial expertise affects the firm’s informational environment. Additional analysis supports the argument that the audit committee’s financial expertise enhances the firm’s informational environment by increasing (decreasing) analyst following (dispersion).
Research limitations/implications
One limitation to consider, like most studies on audit committees, is that the authors do not examine the actual role performed by the audit committee. The authors focus on the characteristics stipulated by the Sarbanes–Oxley Act 2002 and stock exchange rules regarding the financial expertise of audit committee members only.
Practical implications
This study is useful to policy makers, standard setters, investors, activists, managers, lenders and various stakeholders who rely on the financial statements of firms with an expert audit committee on board. The outcome of this study promotes recruiting audit committees with financial expertise due to the assumed benefits of this trait to the US firm.
Social implications
The results of this study are not event-dependent and therefore have persistent effects, which is important to the evaluation of the usefulness of a regulation. This study promotes recruiting audit committees with financial expertise on boards because of the assumed benefits to the firm and investors.
Originality/value
This study is the first to document that financial expertise of audit committee characteristics is not only negatively related to the magnitude of information asymmetry but also driven by the financial expertise of audit committee members rather than chairs.
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Ahmed Atef Oussii and Neila Boulila
The purpose of this paper aims to investigate whether the source of audit committee accounting expertise influences the internal audit function (IAF) effectiveness in the Tunisian…
Abstract
Purpose
The purpose of this paper aims to investigate whether the source of audit committee accounting expertise influences the internal audit function (IAF) effectiveness in the Tunisian setting.
Design/methodology/approach
In the analysis, the authors conduct a survey of chief internal auditors from Tunisian listed companies. Then, a multivariate regression analysis is performed in order to analyze the relationship between audit committee financial expertise and IAF effectiveness.
Findings
The findings of the present study show that audit committee accounting financial expertise is most likely to be positively associated with the implementation of internal audit report recommendations. The authors also find that only financial expertise gained from accounting education and experience (e.g. an audit committee member with experience as a certified public accountant, auditor, chief financial officer or chief accounting officer) is associated with a stronger implementation of IAF recommendations, but not financial expertise gained from work experience in finance positions.
Practical implications
These results may have implications for regulatory bodies. They can provide a better understanding of the role of the audit committee expertise in monitoring internal audit processes. The major contribution of this study is that the audit committee's oversight role is strengthened if the committee members have accounting and auditing expertise.
Originality/value
The study extends prior literature by providing evidence that the source of audit committee accounting financial expertise enhances internal audit effectiveness beyond the outcomes it has on financial reporting quality. The study also contributes to the ongoing debate in the corporate governance literature concerning the definition of the financial expertise of audit committee members.
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Zalailah Salleh and Jenny Stewart
The purpose of this paper is to examine external auditors' perceptions of the impact of audit committee financial expertise and industry expertise on the mediating role played by…
Abstract
Purpose
The purpose of this paper is to examine external auditors' perceptions of the impact of audit committee financial expertise and industry expertise on the mediating role played by the committee in resolving auditor‐client disagreements.
Design/methodology/approach
The study is a 2×2 between subjects experimental design, using 61 Malaysian auditors as participants. The authors manipulate audit committee financial expertise and industry expertise at high and low levels.
Findings
It is found that external auditors perceive that audit committees play a greater mediating role and use mediating techniques to a greater extent when committee members' financial and industry expertise is high compared to when expertise is lower.
Originality/value
This is the first paper to examine the importance of audit committee expertise on the mediating role of the audit committee. The major contribution of the paper is the finding that auditors believe the audit committee's role as a mediator is strengthened not only by the committee members' accounting and auditing expertise but also by their industry expertise. The paper's findings have implications for practitioners and regulators who are concerned with the role of the audit committee in enhancing the integrity of the financial reporting and audit process.
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Cristina Abad and Francisco Bravo
The purpose of this study is to examine how the accounting expertise of audit committee members is associated with the disclosure of forward-looking information.
Abstract
Purpose
The purpose of this study is to examine how the accounting expertise of audit committee members is associated with the disclosure of forward-looking information.
Design/methodology/approach
Manual content analysis is used to analyze forward-looking information disclosed in annual reports as well as gather data about the accounting expertise of directors. Regression analysis is performed to study the association between the disclosure variables and the accounting expertise of audit committee members.
Findings
The results show that the accounting expertise of audit committee members is associated with forward-looking disclosure practices, particularly with information of a financial and strategic nature.
Practical implications
The evidence has direct implications for companies in the selection of directors, as stakeholders may demand nomination committees to appoint audit committees with the accounting experts. They may also request regulatory actions regarding the structure of the audit committee, as these add to the evidence on the benefits of selecting such experts.
Social implications
The evidence on the role of accounting expertise could also help the US Securities and Exchange Commission (SEC) to narrow the definition of financial expertise to specifically consider accounting expertise, as is already happening in the EU context.
Originality/value
This paper extends prior research on corporate governance and voluntary disclosure by showing the association between the company having at least one accounting expert in the audit committee and the level of disclosure of value-relevant information.
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Mohamad Rifai and Sylvia Veronica Siregar
This study aims to examine the effect of the audit committee characteristics on forward-looking disclosure.
Abstract
Purpose
This study aims to examine the effect of the audit committee characteristics on forward-looking disclosure.
Design/methodology/approach
The characteristics of audit committee that examined are audit committee expertise, audit committee meeting frequency and audit committee size. To measure the extent of forward-looking disclosure, this study did content analysis using a checklist of 22 forward-looking items. The samples of this research are 285 non-financial firms listed on the Indonesia Stock Exchange in the year 2015. Ordinary least square regression is used for hypotheses testing.
Findings
The results of this study show that the audit committee accounting expertise, audit committee financial expertise, the frequency of audit committee meetings and the size of the audit committee have a significant positive effect on the forward-looking disclosure.
Originality/value
To the best of the authors’ knowledge, this is the first study examining the audit committee characteristics on forward-looking disclosure in the context of Indonesia, one of the emerging markets.
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This paper aims to review 68 archival studies on the impact of audit committees (ACs) on firms’ consequences [(non)financial reporting, performance and audit quality] in European…
Abstract
Purpose
This paper aims to review 68 archival studies on the impact of audit committees (ACs) on firms’ consequences [(non)financial reporting, performance and audit quality] in European firms.
Design/methodology/approach
Applying a stakeholder agency-theoretical framework, the author differentiates between three categories of AC variables: presence; composition; and resources, incentives and diligence.
Findings
The author finds that AC composition, (non)financial reporting and audit quality are dominant in the literature review. Other inputs or outputs are either too low in amount or yielded heterogeneous results, hindering clear tendencies. However, there are indications that financial expertise is positively related to financial reporting and audit quality, in line with agency theory and European regulatory assumptions.
Research limitations/implications
In the discussion of potential future research, the author emphasizes, among others, the need for the recognition of innovative and sustainable AC variables, inclusion of moderator and especially mediator variables and reaction to endogeneity concerns by advanced regression models.
Practical implications
As the European Commission currently discusses extended regulations on AC duties and composition, this literature review highlights the huge impact of financial expertise on financial reporting and audit quality. In view of the increased monitoring duties of sustainability reporting, both business practices and regulatory bodies should increase the sustainability expertise of ACs.
Originality/value
This analysis makes useful contributions to prior research by focusing on attributes of AC and their impact on firms’ outputs in the European capital market, based on a differentiation between mandatory one-tier/two-tier systems and the choice model. The findings support the promotion of European evidence-based regulations, such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.
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Saeed Rabea Baatwah, Zalailah Salleh and Jenny Stewart
The purpose of this paper is to investigate whether the characteristics of the audit committee (AC) chair affect audit report timeliness. In particular, the direct association…
Abstract
Purpose
The purpose of this paper is to investigate whether the characteristics of the audit committee (AC) chair affect audit report timeliness. In particular, the direct association between AC chair accounting expertise and audit report delay, and the moderating effect of other characteristics of AC chair on this association are examined.
Design/methodology/approach
To achieve the purpose of this study, the characteristics examined by this study are AC chair expertise, shareholding, tenure and multiple directorships. Furthermore, a sample of Malaysian companies during the period 2005–2011 and the fixed effects panel data method are utilized.
Findings
The results suggest that an AC chair with accounting expertise is associated with a reduction in audit delay. The reduction is more obvious when the chair holds shares in the company, but is weakened by longer tenure and multiple directorships. These results are robust after conducting several robust tests. Using mediating analysis, the authors also document that an AC chair with accounting expertise can enhance the timeliness of audit reports even when the quality of financial reporting is lower. The reported result is supported by additional analysis that finds that AC chairs with accounting expertise and AC chairs with accounting expertise and shareholding are significantly associated with shorter abnormal audit delay.
Originality/value
This study provides comprehensive analysis concerning the association between AC chair and audit report timeliness using a unique setting. It is among the limited evidence that reports the moderating effect of AC chair characteristics on the role of such chair on audit report timeliness.
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Abbas Ali Daryaei, Afshin Balani and Yasin Fattahi
The literature on the influence of audit committees (AC) and cosmetic accounting (CA) is scarce. AC plays a unique and vital role in boosting earnings reliability in countries…
Abstract
Purpose
The literature on the influence of audit committees (AC) and cosmetic accounting (CA) is scarce. AC plays a unique and vital role in boosting earnings reliability in countries with weaker application of accounting standards or weaker legal protection for investors. AC, therefore, are considered to be one of the essential tools available to directors in supervising management decisions regarding financial reporting. This paper aims to examine the influence of AC characteristics (ACC) on CA and how this relationship is moderated by the audit fee.
Design/methodology/approach
This study used probit regression to analyze 1,218 firm-year observations of listed companies in Tehran Stock Exchange from 2014 to 2020.
Findings
The results show that AC financial accounting expertise, AC independence, female AC membership and AC tenure were negatively related to CA. The negative relationship is highly pronounced when a firm incurs higher audit fees, and audit fees moderate the relationship between ACC and CA. Results for the robustness checks show that only AC independence was significant, and the results of other characteristics were not significant.
Research limitations/implications
This research was conducted in an Iranian setting where the formation of ACs is on the verge of regulation; therefore, the data used for the study only contains the seven-year period of ACs’ statutory activity. In addition, a lack of consensus on the precise measures of an AC’s effectiveness could be considered as a restrictive factor.
Originality/value
The findings provide an initial insight into the effect AC on CA and moderating effect of audit fee on the relationship between ACC and CA.
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Mahdi Salehi, Mahmoud Lari Dasht Bayaz and Mohamadreza Naemi
The purpose of this paper is to examine whether the characteristics of a CEO, that is, tenure and financial expertise, could affect the timeliness of an audit report.
Abstract
Purpose
The purpose of this paper is to examine whether the characteristics of a CEO, that is, tenure and financial expertise, could affect the timeliness of an audit report.
Design/methodology/approach
Research data gathered from listed companies on the Tehran Stock Exchange during the four-year period 2013-2016.
Findings
The results obtained from model fittings indicated that there is only a negative and significant relationship between CEO financial expertise and natural logarithm of audit report lag and no significant relationship observed between the former and two other indices of timely audit report. Moreover, no significant relationship was found between the CEO tenure and other three indices of timely audit report.
Originality/value
This paper is the first study, which developed the literature of timely audit report using CEO tenure effect and financial expertise tests for timely audit reports in Iran.
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