Audit Committee Members’ Reputation Incentives and Their Effectiveness in Monitoring the Financial Reporting Process

Abacus ◽  
2020 ◽  
Vol 56 (3) ◽  
pp. 348-406
Author(s):  
Eunice S. Khoo ◽  
Youngdeok Lim ◽  
Gary S. Monroe
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Process

scholarly journals Audit Committee and Earnings Management: The Role of Gender

2020 ◽  
Vol 23 (3) ◽  
pp. 379
Author(s):  
Widya. A. Sudarman, Widi Hidayat
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Stock Exchange ◽  
Risk Averse ◽  
Gender Theory ◽  
Reporting Process ◽  
Selection Of

This study has a purpose to investigate the effect of committee audit on earnings management. Using a sampel of companies companies listed in Indonesia Stock Exchange (IDX) 2013-2017. Results of this study shows that gender of audit committee significantly effect earnings management, it explains that female on audit committee are more careful and allow for discretion in terms of financial reporting. The results explain gender theory that women are more risk averse and ethical than men. This research provides new insights for management so that they can consider gender in the selection of committee audit to be appointed by the company with regard to the financial reporting process.

Busyness, Expertise, and Financial Reporting Quality of Audit Committee Chairs and Financial Experts

2014 ◽  
Vol 34 (2) ◽  
pp. 59-89 ◽  
Author(s):  
Paul N. Tanyi ◽  
David B. Smith
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Negative Association ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Committee Chairman ◽  
Committee Chair ◽  
Financial Expertise ◽  
Reporting Process

SUMMARY We investigate how the number of audit committee chair positions and other audit committee financial expertise positions held by the audit committee chairman and the audit committee financial experts affects their ability to oversee a company's financial reporting process. We argue that these two audit committee roles are vital to the functioning of the audit committee and that their over commitment affects audit committee oversight and the firm's financial reporting quality. We observe a significant negative association between financial reporting quality and the number of audit committee chair positions and other audit committee financial expertise positions held by the audit committee chairman. We also find a significant negative association between financial reporting quality and the number of audit committee chair positions and other audit committee financial expertise positions held by audit committee financial experts. Firms with busy audit committee chairs or busy financial experts have significantly higher levels of abnormal accruals, and are more likely to meet or beat earnings benchmarks, which is consistent with the busyness hypothesis. This adverse effect, nonetheless, does not extend to nonaudit committee chairs and nonaudit committee financial experts. We interpret these results to indicate that the busyness of the audit committee chair and financial expert weakens the monitoring and oversight role that audit committees play in the financial reporting process.

The Effect of Audit Committee Industry Expertise on Monitoring the Financial Reporting Process

2013 ◽  
Vol 89 (1) ◽  
pp. 243-273 ◽  
Author(s):  
Jeffrey R. Cohen ◽  
Udi Hoitash ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Data Availability ◽  
Holistic View ◽  
Reporting Process ◽  
Two Measures ◽  
External Auditor ◽  
Accounting Expertise ◽  
Better Than ◽  
Industry Expertise

ABSTRACT Calls from practice suggest that audit committee members with industry expertise can improve audit committee effectiveness. Nevertheless, regulators and the extant literature have focused on the financial expertise of the audit committee. We posit that audit committee industry knowledge is valuable because accounting guidance, estimates, and oversight of the external auditor are often linked to a company's operations within a particular industry. Taking a holistic view, we examine two measures of financial reporting quality (financial restatements and discretionary accruals) and two measures of external auditor oversight (audit and nonaudit fees). As predicted, we find that audit committee members who are both accounting and industry experts perform better than those with only accounting expertise. We also find that in certain instances, supervisory experts who are also industry experts perform better than supervisory experts alone. Overall, these results suggest that industry expertise, when combined with accounting expertise, can improve the effectiveness of the audit committee in monitoring the financial reporting process. Data Availability: All data are gathered from publicly available sources.

Audit Committee Member Investigation of Significant Accounting Decisions

2010 ◽  
Vol 29 (1) ◽  
pp. 173-205 ◽  
Author(s):  
Bradley Pomeroy
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Committee Member ◽  
Negotiation Process ◽  
Future Research ◽  
Reporting Process ◽  
Governance Practice ◽  
Corporate Governance Practice ◽  
Available Information ◽  
Probing Questions

SUMMARY: In the post-Enron environment, audit committee (AC) members are under increased scrutiny to demonstrate effectiveness in resolving significant accounting issues. However, prior research suggests that AC members are not involved in material auditor-client negotiations and that they are often not adequately informed of the issue resolution process. Therefore, AC members may not be effective in their oversight of the financial reporting process unless an accounting decision is clearly aggressive or adequate information about the decision is provided. In this study, I examine AC members’ investigation of accounting decisions when they are (or not) adequately informed of the negotiation process that led to the decision and when the decision results in an aggressive (versus conservative) financial reporting outcome. The hypotheses are developed from social psychology and research on corporate governance practice suggesting that AC members investigate accounting decisions to reduce discomfort in the financial reporting process by asking probing questions of the auditors and management. The results indicate that negotiation knowledge increases AC discomfort but has no effect on AC investigation, perhaps because potential questions were adequately addressed by the available information. I also find that AC members investigate more extensively as accounting decisions become increasingly aggressive and AC members with accounting experience are particularly thorough in their investigations when accounting decisions are aggressive. The results of this research have important implications to practice and future research.

scholarly journals The The Influence of Audit Tenure and Audit Committee on Earnings Quality

2018 ◽  
Vol 19 (1) ◽  
pp. 1
Author(s):  
Fatima Zakiya Razani ◽  
Liu Xia
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Stock Exchange ◽  
Listed Company ◽  
Negative Influence ◽  
Adequate Knowledge ◽  
Reporting Process ◽  
Earning Quality

One of the Auditor and Audit committee role is to ensure the quality of corporate financial reporting process. This study aims to test the effect of the length of auditor tenure and audit committee on earning quality measured by the absolute value of discretionary accruals. A sample of 465 companies has been selected and data covering the period 2009-2014 has been collected from these firms, where 2325 observation were used in this analysis. The data collected form CSMAR and analyzed using GLS regression analysis. This study found that the short audit tenure on Chinese listed company in Shenzhen Stock Exchange has a significance negative influence on earning quality, meanwhile this study found that audit committee which is measure by the size of the committee does not has a significance influence on earning quality. This study suggests that auditor should have a longer tenure to gain adequate knowledge of client’s business. Moreover companies should strengthen the role of their audit committee in monitoring financial reporting process by improved their activity and financial knowledge of the member.

scholarly journals Real Earnings Management and Audit Committee Characteristics

2019 ◽  
Vol 2 (1) ◽  
pp. 8
Author(s):  
Kamarul Abdul Manaf
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Policy Implication ◽  
Audit Committee ◽  
Real Earnings Management ◽  
Earnings Manipulation ◽  
Public Firms ◽  
Reporting Process

Whether audit committee (AC) could discharge its responsibility effectively in monitoring financial reporting process has been an important issue in accounting literature. This paper examines whether AC characteristics are important factors in constraining earnings manipulation. In particular, we examine the effect of AC competence, independence, meeting and size on real earnings management. The sample is public firms listed on Bursa Malaysia over the period 2014-2017. Our results show that AC competence is important characteristic that could curb real earnings management. As the level of competence increases, the level of real earnings management decreases. We also find that AC meeting is positively associated with real earnings management. The result suggest that AC meets more often when there are issues in financial reporting. However, AC independence and size have no relationship with real earnings management. This study provides insights on the role of AC with policy implication on regulator.

Shareholder Elections of Audit Committee Members

2017 ◽  
Vol 37 (4) ◽  
pp. 143-167 ◽  
Author(s):  
Ronen Gal-Or ◽  
Rani Hoitash ◽  
Udi Hoitash
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Board Members ◽  
Past Work ◽  
Reporting Process ◽  
Nominating Committees ◽  
Accounting Expertise ◽  
Governance Choices

SUMMARY Voting in directors' elections is one of few mechanisms by which shareholders can influence corporate governance choices. We study elections of directors who serve on the audit committee (AC), a topic receiving little attention in past work. Our results show that AC members, especially those who do not serve on the compensation or nominating committees, receive greater shareholder support than other independent board members. We further find that among AC members, more qualified members, in terms of accounting expertise, receive greater support, while AC chairs without such expertise receive lower support. In addition, when the AC is less effective in monitoring the financial reporting process, its members receive lower shareholder approval, while other independent board members are less affected by these same financial reporting factors. Finally, when the AC is less effective, all of its members receive lower support, irrespective of their expertise or position within the committee.

Dynamic Data: Corporate Governance and Auditors' Evaluation of Accounting Estimates

2005 ◽  
Vol 20 (1) ◽  
pp. 119-128 ◽  
Author(s):  
Jeffrey R. Cohen ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
House Of Representatives ◽  
Audit Committee ◽  
High Tech ◽  
Audit Process ◽  
Dynamic Data ◽  
Sarbanes Oxley ◽  
Accounting Scandals ◽  
Reporting Process

Corporate governance issues have grown more salient in light of alleged corporate accounting scandals and the subsequent enactment of the landmark Sarbanes-Oxley Act (U.S. House of Representatives 2002). However, even in cases where no fraud has occurred and management is completely aboveboard, the role of various players in the corporate governance framework in maintaining a high-quality financial reporting process cannot be overlooked. This case presents facts surrounding the valuation of inventory at Dynamic Data, a high-tech firm. You will be asked to consider, from an auditor's perspective, whether inventory should be carried at cost in light of changing market conditions. Further, you will be asked to consider the role, if any, that the Audit Committee and Board of Directors might play in the financial reporting process. Special consideration will also be given to examining the implications of the Sarbanes-Oxley Act in the audit process.

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