The Effect of Audit Committee Expertise on Audit Quality: Empirical Evidence from Bangladesh

Abstract

The purpose of this study is to examine the effects of diverse expertise types on audit quality, providing valuable insights for corporate governance and enhancing the audit process. This research uses 651 firm-year observations for 2001-2021 year. This research applies Breusch-Pagan LM, Pesaran Scaled LM, Bias-corrected Scaled LM, and Pesaran CSD test to check the cross-sectional dependency of the series. The study uses second generation panel unit root tests to check the stationary of the variables. After applying the panel cointegration test, this study uses the long run estimation model and robustness checking to examine the relationship. The findings reveal that financial, accounting, and non-accounting expertise all positively and significantly affect audit quality, suggesting that audit committees with diverse expertise can effectively enhance the audit process. This study finds single causal indicating that audit committee expertise improves audit quality. This study emphasizes the importance of incorporating experts from various backgrounds on audit committees to improve audit quality and increase stakeholder confidence in financial statements. This study implies that companies must focus on the expertise on the audit committee during the appointment of the members to maintain the quality of audit reports. This research is unique to the existing literature on audit committee expertise and audit quality by examining the influence of accounting and non-accounting expertise types in Bangladesh context and providing empirical evidence in support of the agency theory.