Internal Governance Structure and External Audit Fee: Malaysia Evidence
DOI:
https://doi.org/10.33736/uraf.1041.2018Abstract
Internal governance structure plays a role in improving quality of financial reporting, thus determining external audit fee is very important. The objective of this study is to examine the association between external audit fees and internal governance structure (boards and audit committee characteristics). The methodology used based on the sample of 115 companies listed on the Bursa Malaysia Main Market in 2015. It is hypothesized that external audit fees will be positively associated with board of director and audit committee’s independence, expertise and meeting frequency. As a result, the findings reveal that no variable found to be significant to external audit fee except for audit committee expertise (audit committees who being accounting professional members). Audit committee expertise indicate negative and significant relationship with external audit fee which implies that the existence more audit committee member who possess accounting professional certification tend to provide complementary effect towards audit effort in the process of negotiating audit fee, thus lower audit fee will be paid. The study suggests there are opportunities to include other variables such as director’s remuneration, ownership structure or /and audit tenure for future research.
Keywords: Corporate Governance, Boards of Directors, Audit Committees, External Audit Fee, Malaysia
References
Abbott, L.J., Parker, S., Peters, G.F. and Raghunandan, K. (2003). The association between audit committee characteristics and audit fee. Auditing: A Journal of Practice and Theory, 22 (2), 17-32.
https://doi.org/10.2308/aud.2003.22.2.17
Azrul Ihsan, H., Anuar, N.,Ahmad S.A, P.S. (2013). Corporate Governance Structure and Its Relationship with Audit Fee-Evidence from Malaysian Public Listed Companies. Asian Social Science, 9, (15), Canadian Center of Science and Education.
https://doi.org/10.5539/ass.v9n15p305
Besley, D. A., Kuh, E. and Welsch, R.E. (1980). Regression diagnostics: identifying influential data and sources of collinearity, Wiley: New York, NY.
https://doi.org/10.1002/0471725153
Bursa Malaysia Listing Requirements (2005), Bursa Malaysia, Kuala Lumpur.
Bursa Malaysia Listing Requirement (2001), Bursa Malaysia, Kuala Lumpur.
Carcello, J.V., Hermanson, D.R., Neal, T.L. and Riley, R.A.Jr. (2002). Board characteristics and audit fees. Contemporary Accounting Research, 19 (3), 365-384.
https://doi.org/10.1506/CHWK-GMQ0-MLKE-K03V
Chan, P., Ezzamil, M. and Gwilliam, D. (1993). Determinants of audit fees for quoted UK companies. Journal of Business, Finance and Accounting 20, 765-786.
https://doi.org/10.1111/j.1468-5957.1993.tb00292.x
Che Ahmad, A. and Derashid, C. (1996). The pricing of audit services: evidence from Kuala Lumpur Stock Exchange (KLSE) listed companies. Journal Analysis, 4 (1), 33-45.
Craswell, A.T and Francis, J.R. (1999). Pricing initial audit engagements: a test of competing theories. The Accounting Review, 74 (2), 201-216.
https://doi.org/10.2308/accr.1999.74.2.201
Craswell, A.T., Francis, J.R. and Taylor, S. L. (1995). Auditor brand name reputations and industry specializations. Journal of Accounting and Economics, 20 (3), 297-322.
https://doi.org/10.1016/0165-4101(95)00403-3
Fama, E. F (1980). Agency problems and the theory of the firm. Journal of Political Economy 88 (April), 288-307.
https://doi.org/10.1086/260866
Fama, E.F. and Jensen, M.C. (1983). Separation of ownership and control. Journal of Law and Economics, 26 (2), 301-326.
https://doi.org/10.1086/467037
Francis, J. and Simon, D. (1987). A test of audit pricing in the small-client segment of the audit us market. The Accounting Review, 62 (1), 145-157.
Goddard, A.R. and Masters, C. (2000). Audit committee, Cadbury Code and audit fees: an empirical analysis of UK companies. Managerial Auditing Journal, 15 (7), 358-371.
https://doi.org/10.1108/02686900010344638
Kaplan, S. and Reishus, D. (1990). Outside directorships and corporate performance. Journal of Financial Economics 27, 389-410.
https://doi.org/10.1016/0304-405X(90)90061-4
Lee, H.Y., and Mande, V. (2005). The relationship of audit committee characteristics with endogenously determined audit and non-audit fees. Quarterly Journal of Business and Economics, 44 (3/4), 93-112.
Malaysia Institute of Accountants By Law (On Professional Conduct & Ethics) Revised 2002. http://www.mia.org.my/main/
Md. Ali, A. (1994). The invaluable audit committee. Accountability in the audit profession in Malaysia. University of Malaya Press, Kuala Lumpur.
Monks, R. A. G. and Minow, N. (1995). Corporate governance. USA: Blackwell.
Norziaton, I. K., Devi, S. S., and Meng, C. W. (2017). Politically Connected, Internal Governance Mechanisms and Audit Fees in Malaysia. Asian Journal of Accounting Perspectives, 10(1).
https://doi.org/10.22452/AJAP.vol10no1.3
Nurul Azlin, A., Omar, S., Nor Balkish, Z., Mohd 'Atef, M.Y. (2013). Audit Committee Attributes on Audit Fees: The Impact of Malaysian Code of Corporate Governance (MCCG) 2007. Journal of Modern Accounting and Auditing, 9, 11, 1442-1453.
O'Sullivan, N. (2000). The impact of board composition and ownership on audit quality: evidence from large UK companies. British Accounting Review, 32, 397-414.
https://doi.org/10.1006/bare.2000.0139
Palmrose, Z. (1986). Audit fees and auditor size: further evidence. Journal of Accounting Research, 24, 97-110.
https://doi.org/10.2307/2490806
Rose, A.M. (1999). Audit pricing and the role of multinational factors: a study of the Hong Kong and Malaysia markets. Advance in International Accounting 12, 129-155.
Sekaran, U. (2000). Research methods for business: a skill building approach (3rd Edition). England: John Wiley & Sons, Inc.
Simon, D.T., Toe, S. and Trompeter, G. (1992). A comparative study of the market for audit services in Hong Kong, Malaysia and Singapore. International Journal of Accounting, 27, 234-240.
Simunic, D.A. (1980). The pricing of audit services: theory and evidence. Journal of Accounting Research 18 (Spring), 161-190.
https://doi.org/10.2307/2490397
Simunic, D.A and Stein, M.T. (1996). Impact of litigation risk on audit pricing: a review of the economics and the evidence. Auditing: A Journal of Practice & Theory, 15 (Supplement), 119-134.
Wan Adibah, I. and Khairul Anuar, K. (2012). Family Firms and Audit Risks: The Role of Audit Committee Financial Expertise. 2012 IEEE Symposium on Business, Engineering and Industrial Applications.263-267
Yatim, P., Kent, P. and Clarkson, P. (2006). Governance structure, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21 (7), 757-782.
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.