Manager Attributes, Firm Characteristics, and Audit Committee Independence: Evidence from the Canadian Context
Downloads
To improve the information quality and defend investors’ interests, the current challenge is no longer only to set up an audit committee, but also to ensure its independence. Nevertheless, this independence is not always guaranteed and it depends on several factors. The study aims to identify the determinants of the audit committee independence. We identify factors linked to the manager attributes and factors linked to the firm characteristics. The empirical study is drawn on a sample of Canadian firms over a period of five years. The results show that the independence of the audit committee is negatively related to the size of the board of directors and to the presence of the manager within the remuneration committee. Furthermore, independence of the audit committee seems to be positively linked to the independence of the board of directors and the existence of intangible assets.
Abbott, L.J, Park Y, Parker, S. (2000) ‘The effects of audit committee activity and independence en corporate fraud’, Managerial Finance, Vol. 26, No. 11, pp.55-67. https://doi.org/10.1108/03074350010766990
Abbott, L.J, Parker, S, Peters, G.F. (2004) ‘Audit committee characteristics and restatements’, Auditing: A Journal of Practice and Theory, Vol. 23, No. 1, pp.69-87. https://doi.org/10.2308/aud.2004.23.1.69
American Institute of Certified Public Accountants, Public Oversight Board of the SEC Practice Section. (1993) Special Report: Issues Confronting the Accounting Profession. Stamford, CT: AICPA.
Al-ahdal, W.M and Hashim, H.A. (2021) ‘Impact of audit committee characteristics and external audit quality on firm performance: evidence from India’, Corporate Governance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CG-09-2020-0420
Al-Hadrami, A.H, Rafiki, A, Sarea, A and Nasution, M.D.T.P. (2020) ‘Is the investment decision affected by the independence and competence of the audit committee?’ A comparative study between Bahrain and Indonesia", Journal of Investment Compliance, Vol. 21, No. 1, pp.29-48. https://doi.org/10.1108/JOIC-05-2020-0005
Alodat, A.Y, Salleh, Z, Hashim, H.A and Sulong, F. (2021) ‘Corporate governance and firm performance: empirical evidence from Jordan’, Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-12-2020-0361
Beasley, M.S. (1996) ‘An empirical analysis of the relation between the board of director composition and financial statement fraud’, Accounting review, Vol. 71, No. 4, pp.443-465. https://www.jstor.org/stable/248566
Beasley, M.S, Carcello J.V, Hermanson D.R, Lapides P.D. (2000) ‘Fraudulent financial reporting: Consideration of industry traits and corporate governance mechanisms’, Accounting Horizons, Vol. 14, No. 4, pp.441-454. https://doi.org/10.2308/acch.2000.14.4.441
Bédard, J, and Géndron, Y. (2010) ‘Strengthening the financial reporting system: Can audit committees deliver?’, International Journal of Auditing, Vol. 14, No. 2, pp.174-210. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1438150
Bradbury, M. (1990) ‘The incentives for voluntary audit committee formation’, Journal of Accounting and Public Policy, Vol. 9, No. 1, pp.19-36. https://doi.org/10.1016/0278-4254(90)90019-V
Bradbury, M, Mak, Y.T and Tan, S.M. (2006) ‘Board Characteristics, Audit Committee Characteristics and Abnormal Accruals’, Pacific Accounting Review, Vol. 18, No. 2, pp.47-68. https://doi.org/10.1108/01140580610732813
Brown, L.D and Caylor, M.L. (2004) ‘Corporate Governance and Firm Performance’. http://ssrn.com/abstract=586423
Cappelletti, L. (2006) ‘Vers une institutionnalisation de la fonction contrôle interne ?’, Comptabilité Contrôle Audit, Tome 12, Vol. 1, pp.27-43. https://doi.org/10.3917/cca.121.0027
Carcello, J.V and Neal, T.L. (2003) ‘Audit committee characteristics and auditor dismissals following “New” going-concern reports», Accounting review, Vol. 78, No .1, pp.95-117. https://doi.org/10.2308/accr.2003.78.1.95
Charreaux, G. (2000). ‘Le conseil d’administration dans les théories de la gouvernance’, La Revue du Financier, No. 127, pp.6-15. https://ideas.repec.org/p/dij/wpfarg/001201.html
Chow, C.W and Rice, S.J. (1982) ‘Qualified audit opinions and auditor switching’, Accounting review, Vol. 57, No. 2, pp.326-335. https://www.jstor.org/stable/247018
DeFond, M. and Zhang, J. (2014) ‘A review of archival auditing research’, Journal of Accounting and Economics, Vol. 58, No. 2–3, pp.275-326. https://doi.org/10.1016/j.jacceco.2014.09.002.
Deli, D.N and Gillan, S.L. (2000) ‘On the demand for independent and active audit committee’, Journal of Corporate Finance, Vol. 6, No.4, pp.427-445. https://doi.org/10.1016/S0929-1199(00)00016-X
DeZoort, T, Hermanson, D, Archambeault, D and Reed, S. (2002) ‘Audit committee effectiveness: a synthesis of the empirical audit committee literature’, Journal of Accounting Literature, Vol. 21, pp.38-75. https://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=2496&context=facpubs
Ebondo Wa Mandzila, E., Ben Amar, W. & Zéghal, D. (2014) ‘La diligence des comités spécialisés obligatoires et volontaires du Conseil : le cas des sociétés du CAC 40’, Recherches en Sciences de Gestion, 101, pp.145-172. https://doi.org/10.3917/resg.101.0145
Fama, E.F and Jensen, M.C. (1983) ‘Separation of ownership and control’, Journal of Law and Economics, Vol. 26, No. 2, pp.301-325. https://www.jstor.org/stable/725104
Geiger, M, Raghunandan, K and Rama, D.V. (1998) ‘Costs associated with going-concern modified audit opinions: an analysis of auditor changes, subsequent opinions and client failures’, Advances in Accounting, Vol. 16, No. 1, pp.117-139. https://scholar.google.com/scholar?cluster=9269326009140432929&hl=en&oi=scholarr
Jensen, M.C. (1993) ‘The modern industrial revolution, exit and the failure of internal control system’, Journal of Finance, Vol. 48, pp.831-880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x
Julie, C. and Mark, S. (2003) ‘Board and monitoring committee independence’, Abacus, Vol. 39, No. 2, pp.211-233. https://doi.org/10.1111/1467-6281.00127
Klapper, L.F and Love, I. (2004) ‘Corporate governance, investor protection, and performance in emerging markets’, Journal of Corporate Finance, Vol. 10, No. 5, pp.703-728. https://doi.org/10.1016/S0929-1199(03)00046-4.
Klein, A. (1998a) ‘Economic determinants of audit committee composition and activity’, Corporate Governance: Actors & Players eJournal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=164494
Klein, A. (1998b) ‘Firm performance and board committee structure’, Journal of law and Economics, Vol. 41, No. 1, pp.275-303. https://doi.org/10.1086/467391
Klein, A. (2002a) ‘Audit Committee, Board of director characteristics, and earnings management’, Journal of Accounting and Economics, Vol. 33, No. 3, pp.375-400. https://doi.org/10.1016/S0165-4101(02)00059-9
Klein, A. (2002b) ‘Economics determinants of audit committee independence’, Accounting review, Vol.77, No. 2, pp.435-452. https://doi.org/10.2308/accr.2002.77.2.435
Knapp, M. (1987) ‘An empirical study of audit committee support for auditors involved in Technical disputes with client management’, Accounting review, Vol. 62, No. 3, pp.578-588. https://www.jstor.org/stable/247578
Koh, P.S and Laplante, S.K and Tong, Y.H. (2007) ‘Accountability and Value Enhancement Roles of Corporate Governance’, Accounting and Finance, Vol. 47, No. 2, pp.305-333. http://dx.doi.org/10.1111/j.1467-629X.2006.00207.x
Krishnan, J. (2005) ‘Audit committee quality and internal control: an empirical analysis’, Accounting review, Vol. 80, No. 2, pp.649-675. https://www.jstor.org/stable/4093072
Menon, K and Williams, J. (1994) ‘The use of audit committees for monitoring’, Journal of Accounting and Public Policy, Vol. 13, No. 2, pp.121-139. https://doi.org/10.1016/0278-4254(94)90016-7
Meyer, J.W. and Rowan B. (1977) ‘Institutional organizations: Formal structure as myth and ceremony’, American Journal of Sociology, Vol. 83, No. 2, pp.340-363. https://www.jstor.org/stable/2778293
Niu, F.F. (2006) ‘Corporate governance and the quality of accounting earnings: some Canadian evidence’, International Journal of Managerial Finance, Vol. 2, No. 4, pp.302-327. https://doi.org/10.1108/17439130610705508
Omri, A. (2003) ‘Systèmes de gouvernance et performance des entreprises tunisiennes’, Revue française de gestion, No. 142, pp.85-100. https://doi.org/10.3166/rfg.142.85-102
Paquerot, M. (1996) ‘L’enracinement des dirigeants et ses effets’, Revue Française de Gestion, No. 111 (novembre-décembre), pp.212-225.
Peasnell, K, Pope, P. and Young, S. (2003) ‘Managerial equity ownership and the demand for outside directors’, European Financial Management, Vol. 9, No. 2, pp.231-250. https://doi.org/10.1111/1468-036X.00217
Peasnell, K.V, Pope, P.F and Young, S. (2005) ‘Board monitoring and earnings management: Do outside directors influence abnormal accruals?’, Journal of Business Finance and Accounting, Vol. 32, No. 7-8, pp.1311-1346. https://doi.org/10.1111/j.0306-686X.2005.00630.x
Persons, O.S. (2005) ‘The relation between the new corporate governance rules and the likelihood of financial statement fraud’, Review of Accounting and Finance, Vol. 4, No. 2, pp.125-150. https://doi.org/10.1108/eb043426
Pincus, K, Rusbarsky, M and Wong, J. (1989) ‘Voluntary formation of corporate audit committees among NASDAQ firms’, Journal of Accounting and Public Policy, Vol. 8, No. 4, pp.239-265. https://doi.org/10.1016/0278-4254(89)90014-8
Pochet, C. and Yeo, H. (2004). ‘Les comités spécialisés des entreprises françaises cotées: mécanismes de gouvernance ou simples dispositifs esthétiques’, Comptabilité, Contrôle, Audit, Vol.10, No. 2, pp.31-53. https://doi.org/10.3917/cca.102.0031
Pucheta-Martínez, M.C and De Fuentes, C. (2007) ‘The Impact of Audit Committee Characteristics on the Enhancement of the Quality of Financial Reporting: an empirical study in the Spanish context’, Corporate governance: An international review, Vol. 15, No.6, pp.1394-1412. https://doi.org/10.1111/j.1467-8683.2007.00653.x
Rapport de la Commission nationale des rapports financiers frauduleux. (1987). https://www.coso.org/Publications/NCFFR.pdf
Saada, T. (1998) ‘Les comités d’audit en France : un an après le rapport Viénot’, Finance-Contrôle-Stratégie, Vol. 1, No. 3, pp.159-184. https://www.academia.edu/3547749/Les_comit%C3%A9s_daudit_en_France_un_an_apr%C3%A8s_le_rapport_Vi%C3%A9not
Sarkar, J, Sarkar, S and Sen, K. (2008) ‘Board of directors and opportunistic earnings management: evidence from India ‘, Journal of Accounting, Auditing & Finance, Vol. 23, No. 4, pp.517-551. https://doi.org/10.1177/0148558X0802300405
Securities and Exchange Commission, (2003) ‘Final Rule: Standards relating to listed company audit committees’, Release Nos, pp.33-8220; 34-47654; File No. S7-02-03, Washington, DC, Securities and Exchange Commission.
Shivdasani, A and Yermack, D. (2002) ‘CEO involvement in the selection of new board members: an empirical analysis’, The Journal of Finance, Vol. 54, No. 5, pp.1829-1853. https://doi.org/10.1111/0022-1082.00168
Stewart, J and Munro, L. (2007) ‘The impact of audit committee existence and audit committee meeting frequency on the external audit: perceptions of Australian auditors’, International Journal of Auditing, Vol.11, No. 1, pp.51-69. https://doi.org/10.1111/j.1099-1123.2007.00356.x
Stolowy, H, Pujol, E and Molinari, M. (2003) ‘Audit financier et contrôle interne : l’apport de la loi Sarbanes-Oxley’, Revue Française de Gestion, No. 147, pp.133-143. https://doi.org/10.3166/rfg.147.133-143
Thiery-Dubuisson, S. (2002) ‘Exigences actionnariales et réseaux d’administrateurs: à quoi répond la mise en place des comités d’audit en France ?’, Comptabilité, Contrôle, Audit, Tome 8, Vol. 1, pp.129-150. https://doi.org/10.3917/cca.081.0129
Vafeas, N. (1999) ‘Board meeting frequency and firm performance’, Journal of Financial Economics, Vol. 53, No. 1, pp.113-142. https://doi.org/10.1016/S0304-405X(99)00018-5
Wan Mohammad, W.M and Wasiuzzaman, S. (2020) ‘Effect of audit committee independence, board ethnicity and family ownership on earnings management in Malaysia’, Journal of Accounting in Emerging Economies, Vol. 10, No. 1, pp.74-99. https://doi.org/10.1108/JAEE-01-2019-0001
