Non-Audit Services in Audit Committee Interlocked Firms, Financial Reporting Quality, and Future Performance

2020 ◽  
Author(s):  
Linna Shi ◽  
Siew Hong Teoh ◽  
Jian Zhou
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Future Performance ◽  
Non Audit Services

Non-Audit Services in Audit Committee Interlocked Firms, Financial Reporting Quality, and Future Performance

2021 ◽  
pp. 0148558X2110155
Author(s):  
Linna Shi ◽  
Siew Hong Teoh ◽  
Jian Zhou
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Board Member ◽  
Detrimental Effect ◽  
Reporting Quality ◽  
Auditor Independence ◽  
Financial Reporting Quality ◽  
Sample Period ◽  
Future Performance ◽  
Sarbanes Oxley

We investigate whether board-interlocked firms via an audit committee (AC) board member exhibit correlated non-audit service (NAS) purchases, and whether financial reporting quality and future firm performance vary with the amount of correlated NAS purchases from the AC interlock. We find that AC interlocked firms have positively correlated total NAS and three NAS subtypes—Tax, Assurance, and Other—in the overall sample period from 2000 to 2016, and in each of the subperiods pre- and post-SOX (Sarbanes–Oxley Act). Firms with a larger NAS component that is explained by the AC interlock tend to exhibit lower financial reporting quality. We also find evidence that firms with higher AC interlocked NAS purchases are associated with lower future performance, although this association exists only in the pre-SOX period. Overall, the evidence suggests that greater NAS purchases among AC interlocked firms can have a detrimental effect on financial reporting quality and auditor independence. While these detrimental effects are concentrated in the pre-SOX period when there were less restrictions on NAS purchases, we find some evidence that the association with lower financial reporting quality persists in the post-SOX period.

Boardroom Backscratching and Audit Fees

2018 ◽  
Vol 38 (2) ◽  
pp. 179-206 ◽  
Author(s):  
Dean Hanlon ◽  
Mehdi Khedmati ◽  
Edwin KiaYang Lim
Keyword(s):  
Financial Reporting ◽  
Policy Development ◽  
Audit Committee ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Risk Premiums ◽  
Audit Opinion ◽  
Future Performance ◽  
The Impact

SUMMARY This study investigates the impact of backscratching between the CEO and directors on a firm's future performance, financial reporting quality, and audit fees. We find that the presence and extent of boardroom backscratching are associated with weaker future performance, poorer quality financial reporting, and higher audit fees. We attribute these findings to backscratching firms' increased business and information risks inducing auditors to exert greater effort and charge risk premiums in response to heightened audit engagement risks. We observe consistent results when extending our investigation to backscratching between the CEO and audit committee and between the CEO and the CFO, given that the audit committee and the CFO influence financial reporting quality. Finally, we provide evidence that backscratching firms display greater audit report lag and a higher likelihood of receiving a going concern audit opinion. Our study offers insights to regulators concerning policy development to strengthen board effectiveness and remuneration disclosures.

Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

2017 ◽  
Vol 92 (6) ◽  
pp. 187-212 ◽  
Author(s):  
Seil Kim ◽  
April Klein
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Research Question ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Difference In Differences ◽  
Listed Firms ◽  
Sarbanes Oxley ◽  
Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

scholarly journals An Investigation on the Audit Committees Effectiveness: The Case for GLCs in Malaysia

2011 ◽  
Vol 13 (3) ◽  
pp. 287 ◽  
Author(s):  
Nurul Nazlia Jamil ◽  
Sherliza Puat Nelson
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Financial Expertise ◽  
Monitoring Mechanism ◽  
The Impact

Financial reporting quality has been under scrutiny especially after the collapse of major companies. The main objective of this study is to investigate the audit committee’s effectiveness on the financial reporting quality among the Malaysian GLCs following the transformation program. In particular, the study examined the impact of audit committee characteristics (independence, size, frequency of meeting and financial expertise) on earnings management in periods prior to and following the transformation program (2003-2009). As of 31 December 2010, there were 33 public-listed companies categorized as Government-Linked Companies (GLC Transformation Policy, 2010) and there were 20 firms that have complete data that resulted in the total number of firm-year observations to 120 for six years (years 2003-2009).  Results show that the magnitude of earnings management as proxy of financial reporting quality is influenced by the audit committee independence. Agency theory was applied to explain audit committee, as a monitoring mechanism as well as reducing agency costs via gaining competitive advantage in knowledge, skills, and expertise towards financial reporting quality. The study is important as it provides additional knowledge about the impact of audit committees effectiveness on reducing the earnings management, and assist practitioners, policymakers and regulators such as Malaysian Institute of Accountants, Securities Commission and government to determine ways to enhance audit committees effectiveness and improve the financial reporting of GLCs, as well as improving the quality of the accounting profession.     

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