scholarly journals CAE Remuneration and Financial Reporting Quality

2021 ◽  
Vol 24 (1) ◽  
pp. 90-103
Author(s):  
Abdulaziz Alzeban
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Internal Audit ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Annual Reports ◽  
Quality Data ◽  
Estimation Methods ◽  
Company Performance

Remuneración del Director Ejecutivo de la Auditoría y Calidad de la Información Financiera. En este trabajo se explora la relación entre la remuneración fija pagada al Director Ejecutivo de Auditoría (CAE) y la consiguiente calidad de la información financiera (FRQ). Así,  se argumenta que una estrategia de remuneración basada en el rendimiento de la empresa es perjudicial para la FRQ, y que cuando el CAE recibe una remuneración fija, hay menos amenazas para la objetividad de la auditoría interna (IA) y, por lo tanto, una mayor FRQ como aproximación a la calidad de los informes financieros. Los datos se obtienen a través de una encuesta, y la información se recoge de los informes anuales. Los resultados indican que cuando el CAE es compensado de acuerdo con el desempeño de la empresa, la objetividad se reduce, con el consiguiente resultado de que la FRQ se ve afectada. Además, cuando la remuneración y compensación del CAE es aprobada por el comité de auditoría, en lugar de por el CEO, la FRQ es mayor. También se encuentran pruebas de que los efectos de la objetividad de la IA se eliminan cuando el CEO participa en la aprobación de la remuneración y compensación del CAE. El estudio aporta ideas sobre la cuestión de si la remuneración del CAE mejora la objetividad de la IA y, al hacerlo, es de interés para los comités de auditoría con responsabilidad en esa dirección. Se utilizan dos métodos de estimación diferentes para confirmar la solidez de los resultados. This paper reports on a study exploring the relationship between the fixed remuneration paid to the Chief Auditing Executive (CAE), and the subsequent financial reporting quality (FRQ). The study argues from the viewpoint that a strategy of compensation provided on the basis of company performance is detrimental to FRQ, and that when the CAE receives fixed remuneration, there is less threat to internal audit (IA) objectivity, and hence, greater FRQ as proxied by accruals quality. Data are obtained via a survey questionnaire, and information offered within annual reports. The findings indicate that when the CAE is compensated according to company performance, objectivity is reduced, with the consequent outcome that FRQ is impaired. Furthermore, when CAE remuneration and compensation are approved by the audit committee, rather than by the CEO, FRQ is higher. Evidence that the effects of IA objectivity are eliminated when the CEO is involved in approving CAE remuneration and compensation is also found. The study provides insights into the question of whether CAE remuneration enhances IA objectivity, and in doing so is of interest to audit committees with responsibility in that direction. Two different estimation methods are used as a means of confirming the robustness of these results.

Influence of internal audit reporting line and implementing internal audit recommendations on financial reporting quality

2019 ◽  
Vol 28 (1) ◽  
pp. 26-50 ◽  
Author(s):  
Abdulaziz Alzeban
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Negative Impact ◽  
Empirical Work ◽  
Internal Audit ◽  
Reporting Quality ◽  
Positive Influence ◽  
Financial Reporting Quality ◽  
Annual Reports ◽  
Content Type

Purpose This study aims to explore the influence of internal audit (IA) reporting lines and the implementation of IA recommendations (IMPLEMENT) on financial reporting quality (FRQ). Design/methodology/approach Data were obtained from the annual reports of 201 UK listed companies, and also from survey questionnaires completed by the chief audit executives working within those companies. Two measures are used as proxies of FRQ: abnormal accruals and accrual quality. Findings Findings indicate that when IA reports directly to the audit committee (AC), there is a significant positive influence upon FRQ. Conversely, when IA reports to the chief executive officer (CEO) or chief financial officer (CFO), there is a negative impact on FRQ. It is further shown by the results that lower income-increasing accruals are evident when there is greater IMPLEMENT, thereby showing an accompanying positive influence on FRQ. Moreover, the results indicate that greater adoption of such recommendations is also associated with internal reporting lines, i.e. when IA reports directly to the AC, FRQ results improved. Originality/value These findings contribute to the literature in the field of IA reporting, by introducing new insights regarding reporting lines and IMPLEMENT, and the influence of these on FRQ, and by establishing those insights through empirical work undertaken in the UK where little research on this issue has been reported.

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.     

Audit committee ownership and audit report lag: evidence from Australia

2020 ◽  
Vol 28 (1) ◽  
pp. 96-125
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Mabel D’Costa
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Financial Statements ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Audit Report ◽  
Content Type ◽  
External Auditors ◽  
Using Data

Purpose This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting process, to ensure that financial statements are both credible and released to external stakeholders in a timely manner. To date, however, the extent to which audit committee ownership strengthens or compromises member independence, and hence, influences audit report lag, has remained unexplored. Design/methodology/approach This paper hypothesizes that audit committee ownership is associated with audit report lag. Further, the author hypothesize that both the financial reporting quality and the going concern opinions of a firm mediate the effect of audit committee ownership on audit report lag. Findings Using data from Australian listed companies, the author find that audit committee ownership increases audit report lag. The author further document that financial reporting quality and modified audit opinions rendered by external auditors mediate this positive relationship. The results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to the audit committee members. Originality/value The study contributes to both the audit report timeliness and the corporate governance literatures, by documenting an adverse effect of audit committee ownership.

Auditor Communications with the Audit Committee and the Board of Directors: Policy Recommendations and Opportunities for Future Research

2007 ◽  
Vol 21 (2) ◽  
pp. 165-187 ◽  
Author(s):  
Jeffrey Cohen ◽  
Lisa Milici Gaynor ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Financial Reporting ◽  
Boards Of Directors ◽  
Audit Committee ◽  
Academic Research ◽  
Reporting Quality ◽  
Academic Community ◽  
Communication Process ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Future Research

To contribute to the Public Company Accounting Oversight Board (PCAOB) project on auditor communications with audit committees and boards of directors, we present in this paper a review of relevant academic literature. We also identify promising future research opportunities for the academic community. We specifically focus on how the communication process may affect overall financial reporting quality, internal controls, control environments, and external auditors' performance, as well as matters that potentially impact financial reporting and should interest the PCAOB (e.g., in the area of management discussion and analysis). We specifically link the findings from academic research to the discussion questions posed by the PCAOB in its 2004 briefing paper. Several potential implications of the findings should also interest standard-setters and regulators addressing issues related to corporate governance and financial reporting quality.

Academic Research on Communications Among External Auditors, the Audit Committee, and the Board: Implications and Recommendations for Practice

2008 ◽  
Vol 2 (1) ◽  
pp. A1-A8 ◽  
Author(s):  
Jeffrey Cohen ◽  
Lisa Milici Gaynor ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Financial Reporting ◽  
Boards Of Directors ◽  
Audit Committee ◽  
Academic Research ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
External Auditors ◽  
Research Findings ◽  
Recommendations For Practice

SUMMARY: This article provides a summary of the academic research findings on the attributes of effective audit committees and potential threats to financial reporting quality that should lead to heightened auditor and audit committee sensitivity. The practice implications of this research are then discussed in terms of appropriate communications among auditors, audit committees, and boards of directors.

Legal Expertise on Corporate Audit Committees and Financial Reporting Quality

2011 ◽  
Vol 86 (6) ◽  
pp. 2099-2130 ◽  
Author(s):  
Jayanthi Krishnan ◽  
Yuan Wen ◽  
Wanli Zhao
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Positive Association ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Corporate Board ◽  
Positive Effects ◽  
The Individual ◽  
Legal Expertise

ABSTRACT Recent trends in corporate board composition indicate an increase in the appointment of directors with legal expertise. Using two financial reporting quality measures, accruals quality and discretionary accruals, we find—for a sample of Russell 1000 firms in 2003 and 2005—that the presence (and proportion) of directors with legal backgrounds on the audit committee is associated with higher financial reporting quality. These results obtain after controlling for accounting expertise on audit committees. Also, supplementary tests indicate a positive association between changes in legal expertise and changes in financial reporting quality, suggesting that legal expertise serves as a monitor rather than as a signal of financial reporting quality. Further, the two forms of expertise interact —i.e., the presence of directors with both forms of expertise enhances financial reporting quality, beyond the contribution of the individual forms of expertise. Additional tests suggest that the positive effects of legal expertise are greater in the post-SOX period compared with a pre-SOX year.

scholarly journals The Triangle Defense for Financial Reporting Quality: The Interplay between Internal Auditing, the Audit Committee, and the External Auditor

Wahana ◽  
2020 ◽  
Vol 23 (1) ◽  
pp. 112-130
Author(s):  
Djoko Susanto
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Academic Research ◽  
Internal Audit ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Working Relationships ◽  
External Auditors ◽  
External Auditor

The internal audit function, audit committee, and external auditor are three crucial stakeholders of corporate governance that safeguard the quality of financial reporting. In this article, I discuss the interrelationships between these monitoring mechanisms. I also provide insights about what we have learned from academic research about the working relationships between these three governance entities. This article should be of interest to academic researchers as well as to corporate stakeholders, which include management, investors, regulators, and Dewan Komisaris members. Future researchers can make use of this article as they contribute more work in areas related to auditing, monitoring and corporate governance, and financial reporting quality. Insights from this article can also guide corporate stakeholders to assess the effectiveness of the internal audit, audit committee, and external auditors in their organizations.

scholarly journals The Impact of Audit Committee Performance and Composition on Financial Reporting Quality in Jordan

2021 ◽  
Vol 12 (3) ◽  
pp. 55
Author(s):  
Qasim Ahmad Alawaqleh ◽  
Nashat Almasri
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Work Performance ◽  
Stock Exchange ◽  
Internal Audit ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Governance System ◽  
The Impact

The corporate governance literature indicates efforts to investigate the role of the audit committee (AC) in improving the financial reporting quality (FRQ) after the emergence of financial scandals in many countries in the world, inclusive Jordan. To date, empirical findings are inconclusive enough to address all audit committee characteristics regarding its competency and responsibilities by employing a questionnaire to collect data about this relationship. Thus, this study measures the correlation between AC (performance and composition) and FRQ of manufacturing corporations registered on the Amman Stock Exchange (ASE). To test this impact empirically, the target population was financial managers, audit committee members, and internal audit managers who are working in manufacturing corporations listed on the (ASE). According to the coefficient (β), the independent variables (Audit Committee Performance and Audit Committee Composition influence the dependent variable FRQ. This research recommends that firms enhance the audit committee work performance and composition to ensure audit committee members effectively enhance the FRQ audit committee is a vital mechanism of the firm's corporate governance system.

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.

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