Does Quality of Audit Committee Enhance Audit Quality?

Abstract

Purpose: This study investigates whether quality of audit committee affects audit quality of Korean listed firms using panel data during the period 2008 to 2018.   Theoretical framework: Recent studies show that characteristics of audit committees such as size, activity, and expertise have a significant impact on the monitoring of the financial reporting process (He and Yang, 2014; Asiriuwa et al. 2018). Therefore, it is necessary to carry out systematic empirical studies to understand the effectiveness of the audit committee from various perspectives.   Design/methodology/approach: The quality of audit committee is classified into four categories: 1) activity, 2) independence, 3) expertise, and 4) the presence of female audit committee member. Audit quality is measured by auditor size and accruals quality.   Findings: This study finds that activity and expertise of audit committee enhance audit quality whereas independence of audit committee does not affect audit quality. The female audit committee member partially enhances audit quality.   Research, Practical & Social implications: This study suggests that the high quality of the audit committee enhances the audit quality and increases the accounting transparency of the firm.   Originality/value: The empirical results of this study suggest that firm should concentrate the optimal composition of the audit committee, not simply the establishment of the audit committee.