The effectiveness of the audit committee in Spain: implications of its existence on the auditor’s opinion

Abstract

This research work is aimed at determining the effectiveness of the Audit Committee (AC), analyzing its impact on the reliability of accounting information issued by spanish listed companies. With this aim, we study whether certain features such as its voluntary or otherwise compulsory formation, its independence and activity lead to an improvement of financial reporting quality, which is defined as the removal of avoidable qualifications in the audit report. We considered the periods where ACs were voluntary (1998-2002) and compulsory (2003 onwards). The results obtained suggest that: (a) compulsory ACs are more effective than voluntary ones; (b) ACs with a higher proportion of independent members do not lead to greater improvements in the quality of accounting information; and (c) the number of meetings of the AC is directly related to improvements in the quality of accounting information.

The Influence of Audit Committee Characteristics on Modified Audit Opinion in Jordan

“…Moreover, Pucheta-Martínez & de Fuentes [38] discover that AC independence is a negatively significant relationship at the 10% level with the reforms of audit opinion for noncompliance with GAAP. Antagonistically, this study did not discover any correlation between AC independence and quality of financial reporting [54,4,15,9]. However, the relationship between AC independence and modified audit opinion in Jordan remains unclear.…”

“…AC independence is deemed critical in supervising the quality of the financial report [16]. Apart from this, earlier study shows that ACs with independent members in boards of directors are more successful safeguarding the auditor's independence [52,15]. In accordance with Hayes, [53] and Bajra & Čadež, [7] demonstrated that the independence is preferred from the financial statement opinion since independent members are more expected to convey a fair opinion regarding financial reporting practices compared to dependent members.…”

“…The number of meetings is the main component in the dependability and efficacy of a corporate's undertakings and practices [22]. The number of meetings conducted by AC is directly associated with enhancements in the quality of financial reports [15,16]. This is because more meetings held by the AC can boost their efficacy and provide more successful supervision for company financial statement [4], including planning and writing of firm financial activities.…”

“…Consequently, when the AC is characterized by expediting the labor of the external auditor, then the auditor's opinion regarding the financial reports should be enriched [14]. This should be developed from a qualified opinion to a positive one, or generate certain reforms to the qualities and recommendations [15]. Thus, the AC must work with management and the external independent auditor to obtain the knowledge needed to deliver appropriate supervision of the process of financial reporting.…”

“…Consistent with Salehi & Shirazi, [21] and Bajra & Čadež, [7] who revealed that ACCs are positively linked with the quality of financial reporting. The efficacy of corporate AC in monitoring the financial reporting practice relies on the independence of AC members [1] accounting and financial expertise [20,24,23], the number of meetings held [15] and size of AC [25].…”