Audit committee characteristics and financial restatement incidence in the emerging market

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Abstract

This paper discusses issues concerning audit committee characteristics that lead to the occurrence of financial restatements in Malaysian public listed companies (PLCs). The audit committee characteristics were measured using size, independence, frequency of meetings, audit tenure, gender, expertise, age, ethnicity, legal qualifications, and political connections. The data in this study were extracted from the annual reports of 100 firms that had restated their financial statement between 2006 and 2015, and a total of 200 non-restatement firms were matched and observed as control firms. Using univariate and multivariate statistical analysis, the results evince that there is a significant association between audit committee size and frequency of meetings as well as ethnicity and political connections of the audit committee members and the occurrence of financial restatements in Malaysian PLCs. However, the remaining audit committee characteristics show insignificant association with the occurrence of financial restatements. Consistent with Wan Mohammad, Wasiuzzaman, and Nik Salleh (2016), the results show that larger and more rigorous audit committees can strengthen the monitoring role and consequently reduce the occurrence of financial restatements. In addition, the results evince that Malay members in the audit committee have widespread political connections, which negatively affect the decisions by the audit committee, thereby increasing the occurrence of financial restatements.

Keywords: Audit Committee Characteristic, Financial Restatement, Emerging Market, Malaysia

Authors’ individual contribution: Conceptualization — S.H.; Methodology — N.S.M.E.; Writing — Original Draft — S.H., N.S.M.E., and A.R.M.H.; Writing —Review & Editing — S.H. and A.R.M.H.; Supervision — S.H., A.A.S.A.-D., and R.K.; Project Administration — S.H. and M.E.M.K.; Funding Acquisition — S.H. and A.A.S.A.-D.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The Authors would like to express their gratitude to the Research Management Centre, Universiti Teknologi MARA for funding the research project through the Strategic Research Partnership Grant (100-RMC 5/3/SRP (080/2021). Our appreciation also goes to the Faculty of Accountancy, Universiti Teknologi MARA and Department of Accounting, Prince Sattam Bin Abdulaziz University for facilitating this research project.

JEL Classification: L21, L22, M12, M14, M41, M54

Received: 02.04.2022
Accepted: 12.08.2022
Published online: 16.08.2022

How to cite this paper: Hasnan, S., Eskandar, N. S. M., Mohamed Hussain, A. R., Al-Dhubaibi, A. A. S., Kamal, M. E. M., & Kusumaningtias, R. (2022). Audit committee characteristics and financial restatement incidence in the emerging market. Corporate & Business Strategy Review, 3(2), 20–33. https://doi.org/10.22495/cbsrv3i2art2