The Effect of Audit Committee Characteristics on Audit Quality: The Moderating Role of Internal Audit Function

  • Josephine Kuan Pei See AGCO GSI Malaysia Sdn. Bhd
  • Anwar Allah Pitchay School of Management, Universiti Sains Malaysia
  • Yuvaraj Ganesan Graduate School of Business, Universiti Sains Malaysia
  • Hasnah Haron Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia
  • Ratih Hendayani School of Economics and Business, Telkom University
Keywords: Audit committee, Internal audit, Audit quality, Agency theory, Gender, Audit committee size, Independent directors

Abstract

The purposes of study are to examine the effect of audit committee characteristics namely gender, frequency of meetings, independence member in audit committee and audit committee size on audit quality and the moderating role of internal audit function in the relationship between audit committee characteristics and audit quality. The objective is to contribute to the new evidence on the role of audit committee characteristics plays towards the audit quality with internal audit function as moderator. This research applied a quantitative approach and secondary data as the main source of information for analysis. Stratified random sampling techniques are being used in this study. Further, the structural equation modelling (SEM) approach via SmartPLS was utilized to achieve the research purpose by evaluating the data collected from 250 public listed companies in Malaysia. The results reveal that only three of the audit committee characteristics, namely presence of female members in the audit committee, frequency of meetings and independence of directors, are positively influencing the audit quality for listed companies in Malaysia. Surprisingly, this study also found that internal audit function did not play the moderating effect in the relationship between audit committee characteristics and audit quality. The findings will facilitate researchers and scholars to enhance the understanding of audit committee characteristics particularly the gender, frequency of AC meetings and independence members in the audit committee played in improving overall audit quality. The companies’ stakeholders like professional accountancy body and governments may use the outcomes from this research study to improve existing rules and government regulations and code of conducts of its members to improve the quality of their works. This study contributes to the relatively new discussion on the effect of audit committee characteristics on audit quality by adding internal audit function as a moderator in Malaysia. The outcome from this study may assist the companies’ stakeholders like professional accountancy body and governments in determining improved methods to enhance audit committee characteristics in improving audit quality.

Author Biographies

Josephine Kuan Pei See, AGCO GSI Malaysia Sdn. Bhd

Josephine Kuan is a Business Development Manager at Grain & Protein Greater Asia, AGCO Corporation. She earned her BSc (Hons.) in Applied Accounting with Oxford Brookes University, UK and recently graduated her MBA with University of Science, Malaysia. She is a fellow member of The Association of Chartered Certified Accountants, member of the Malaysian Institute of Accountants and the ASEAN Chartered Professional Accountant.

Anwar Allah Pitchay, School of Management, Universiti Sains Malaysia

Anwar Bin Allah Pitchay, PhD, is a lecturer at School of Management, USM. He joined the university after completing his PhD at the International Islamic University Malaysia (IIUM). His research interest is in the area of Islamic Banking and Finance and, Non-Banking Islamic Finance Institutions (NBFI). He has published several articles related to NBFI in local and international journals.

Yuvaraj Ganesan, Graduate School of Business, Universiti Sains Malaysia

Yuvaraj Ganesan is a senior lecturer at Graduate School of Business, Universiti Sains Malaysia. His research interests are Auditing, Service Quality, Corporate Governance, CSR, SMEs. He has published articles in various indexed and refereed journals. He is a member of the Malaysian Institute of Accountants (MIA) and Institute of Internal Audit, Malaysia (IIAM).

Hasnah Haron, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia

Hasnah Haron is a Senior Academic Fellow at the Faculty of Economics and Mualamat, Universiti Sains Islam Malaysia. She was conferred a PhD from the University of Hull in 1996 with a specialisation in Auditing. She was formerly attached to Universiti Teknologi Mara, Universiti Sains Malaysia and Universiti Malaysia Pahang.

Ratih Hendayani, School of Economics and Business, Telkom University

Ratih Hendayani is a Lecture at the School of Economics and Business, Telkom University. She graduated with a PhD from Universiti Sains Malaysia. Her research topic is about Operational Quality Management and Supply Chain Management. She has published several research articles in international journals and proceedings. She is an editor for the national accredited journal “Jurnal Manajemen Indonesia” and actively review for IGI publisher.

Published
2020-07-27
How to Cite
Kuan Pei See, J., Pitchay, A. A., Ganesan, Y., Haron, H., & Hendayani, R. (2020). The Effect of Audit Committee Characteristics on Audit Quality: The Moderating Role of Internal Audit Function. Journal of Governance and Integrity, 3(2). https://doi.org/10.15282/jgi.3.2.2020.5309
Section
JGI Vol. 3, Issue 2, July 2020