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Audit Committee Effectiveness and Audit Quality: Evidence from Saudi Arabia

Journal of Administrative and Economics Science

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Title Audit Committee Effectiveness and Audit Quality: Evidence from Saudi Arabia
 
Creator Habbash, Murya .
Alagla, Saleh .
 
Description This study investigates if Audit Committee (AC) effectiveness, measured by size, activity,independence, and expertise, affects audit quality through the appointment of a high quality auditor. Thisstudy deepens our understanding of the role of AC in a developing country that recently applied aCorporate Governance (CG) Code, Saudi Arabia. The study employs logistic multiple regression analysis,in which we use two dummy dependent variables: selection of an industry specialist auditor and a Big-4auditor or not. We examine a sample of 361 firm-year observations from 2007 to 2011. The basic analysisshows that AC size is the only determinant of audit quality, with a negative coefficient. When aggregatingthe effectiveness characteristics in one score, we find a significant negative correlation with audit quality,which implies that effective ACs are less likely to select an industry specialist auditor, contrary toexpectations. The additional analysis shows that none of the AC effectiveness characteristics affects thedecision of the AC to appoint a Big-4 auditor, whether individually or collectively. Furthermore, we findthat ACs of firms with higher family and managerial ownerships and larger firm size are more likely toselect a higher quality auditor. CG regulators and interested parties should recognize that ACeffectiveness does not necessarily ensure audit quality or rational decisions, since we find that effectiveACs are more likely to select an industry non-specialist auditor. ACs seem to comply with CG regulationsin form rather than in substance.
 
Publisher Qassim University Academic Publishing and translation
 
Contributor —
 
Date 2016-10-07
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://publications.qu.edu.sa/ojs/index.php/economic/article/view/1331
 
Source Journal Of Administrative And Economics Science; Vol 8, No 2
 
Language eng
 
Relation http://publications.qu.edu.sa/ojs/index.php/economic/article/view/1331/1243
 
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