Audit Committee and Audit Fees in Malaysia: The Moderating Role of Political Connection

Abstract

The Malaysian corporate governance regime underwent significant enhancement through the revamp of the Bursa Malaysia Listing Requirements (BMLR) in 2008 in respect of audit committee characteristics in order to address adverse market perceptions of its relationship based economy with the strong presence of politically connected (PCON) firms. This study investigates whether such reforms have made a difference. We examine if PCON firms have higher audit fees post implementation of BMLR 2008 on audit committee characteristics. Using data from 945 firm-year observations for 2005 to 2009 we find that PCON firms have higher audit fees due to improved governance which demands an increase in audit effort. ISSN 1941-899X 2015 www.macrothink.org/jmr 531 Further, the association between audit committee independence, diligence, and expertise and audit fee is stronger post-2008, suggesting that PCON firms are committed to strong corporate governance and are prepared to pay a higher quality external audit work. Journal of Management Research

Audit Committee Effectiveness and Audit Fee among Listed Deposit Money Banks in Nigeria

“…Prior studies on the effectiveness of the audit committee expertise based on audit fee have been conducted in the developed economies like the United States of America (such as [23,26], the United Kingdom [11,25]; Australia (such as [22,24]; and France [4] among others. The few studies conducted in the developing countries were largely done in Malaysia [16,[27][28][29]. Most of these studies had reported a positive and significant relationship between audit committee expertise and audit fee.…”

“…An audit committee team with financial expertise has the tendency of reviewing the contents in the financial statement; evaluating those areas requiring the work of the committee on technical and decision making as some areas in the financial statement are subjective in nature; and, lowering the risk of internal control failure through reviewing of effective internal control and internal audit effectiveness which can motivate the external auditor to set a lower audit risk thereby reducing lower audit fee charged by the auditor [29,30]. In contrast, [23,16,4,28,26,11,25] revealed that audit committees with financial expertise would require high audit quality from the external auditor by demanding more thorough audit efforts as well as request the auditor to devote sufficient time and efforts to the audit exercise, thereby increasing the audit fee charged by the auditor on its client. More so, an audit committee with financial expertise may demand for a more thorough and higher quality audit to protect itself from any accounting scandal and meet regularly with the auditor to discuss audit matters and discuss the way forward to reduce audit failure, thereby leading to higher audit costs [31,32].…”

“…Another way the previous studies measured audit committee effectiveness is through the diligence of an audit committee. The audit committee diligence had been largely measured by previous empirical studies such as [12,27,4,28,26] through the number of times the audit committee meets during a year. For effective corporate governance, the Code of Corporate Governance for public companies in Nigeria (2016) requires an audit committee to meet and discuss with the management and external auditor for the annual audited and halfyearly unaudited financial statement and meet separately with the management, the external auditors and the internal audit department to discuss the strength and weakness of internal control of a firm.…”

“…Prior research on the effect of audit committee diligence on audit fee had reported mixed results. For instance, the studies of [4,12,20,[26][27][28][33][34][35][36][37][38] revealed that audit committees that meet regularly would be more likely to discuss accounting and auditing matters that need immediate decisions as well as organise meetings with the internal audit department and auditors in order to demand for high audit quality which would improve the quality of financial statements thereby leading to higher audit fees. [39] also revealed that audit committees that meet regularly can be proactive rather than being reactive and would positively influence the audit coverage during the various stages of the audit exercise, thereby resulting to high audit fees.…”

Ownership Structured Firms in Malaysia: Audit Committee Characteristics and Audit Fees

“…Increasing monitoring by audit committees also associated with increase in audit fees (Ismail et al, 2012). According to Norziaton et al (2015), PCON firms have higher audit fees due to improved governance which demands an increase in audit effort. Further, the association between audit committee independence, diligence, and expertise and audit fee is significant, suggesting that PCON firms are committed to strong corporate governance and are prepared to pay a higher quality external audit work.…”