The Effect of Audit Committee Characteristics on Audit Quality: The Moderating Role of Internal Audit Function

Abstract

The purposes of study are to examine the effect of audit committee characteristics namely gender, frequency of meetings, independence member in audit committee and audit committee size on audit quality and the moderating role of internal audit function in the relationship between audit committee characteristics and audit quality. The objective is to contribute to the new evidence on the role of audit committee characteristics plays towards the audit quality with internal audit function as moderator. This research applied a quantitative approach and secondary data as the main source of information for analysis. Stratified random sampling techniques are being used in this study. Further, the structural equation modelling (SEM) approach via SmartPLS was utilized to achieve the research purpose by evaluating the data collected from 250 public listed companies in Malaysia. The results reveal that only three of the audit committee characteristics, namely presence of female members in the audit committee, frequency of meetings and independence of directors, are positively influencing the audit quality for listed companies in Malaysia. Surprisingly, this study also found that internal audit function did not play the moderating effect in the relationship between audit committee characteristics and audit quality. The findings will facilitate researchers and scholars to enhance the understanding of audit committee characteristics particularly the gender, frequency of AC meetings and independence members in the audit committee played in improving overall audit quality. The companies’ stakeholders like professional accountancy body and governments may use the outcomes from this research study to improve existing rules and government regulations and code of conducts of its members to improve the quality of their works. This study contributes to the relatively new discussion on the effect of audit committee characteristics on audit quality by adding internal audit function as a moderator in Malaysia. The outcome from this study may assist the companies’ stakeholders like professional accountancy body and governments in determining improved methods to enhance audit committee characteristics in improving audit quality.

Financial inclusion disclosure, internal governance quality, and bank ownership structure: An exploratory study in Egyptian banks

“…The internal audit function (IAF) is an instrumental variable in the regression model. IAF performs internal audits and enhances internal controls in all essential processes and operations to assist the AC in effectively carrying out its functions and responsibilities [72]. At the first stage, the AudCom variable is regressed on the IAF, which is considered IV in the model, and the new "fitted" regressor is obtained in Eq.…”

Board Structure, Directors’ Remuneration Disclosure Level and Firm Value in Malaysia

“…The 1997 financial crisis in Asia led numerous corporate organizations to collapse, compelling Asian countries, including Malaysia, to call for enhanced transparency (See, Pitchay, Ganesan, Haron, & Hendayani, 2020). Few factors were recognised as the cause, nevertheless, economists have identified the failure of the corporate governance systems as the primary factor (Khalid, 2018).…”