Effective audit committee and financial reporting quality: the mediating effect of audit quality : evidence from KSA

Abstract EN

The purpose-This study aims to examine the mediating effect of audit quality on the rela-tionship between the effective audit committee and financial reporting quality.

Design/ methodology/ approach- The research uses multiple regression analysis to test the relationship between the effective audit committee and financial reporting quality.

The sam-ple consists of 77 non-financial firms listed on the Saudi stock market between 2014 and 2021.

Findings – Empirical findings show that studies on effective audit committees and financial reporting quality displayed mixed results.

The study findings indicate that audit quality has a mediation effect on the relationship between audit committee characteristics (more oversized Audit Committee, financial expertise, frequent meetings, gender diversity, independent members) and financial reporting quality.

The study findings indicate that a change in audit committee effectiveness brings a change in audit quality, and a difference in audit quality brings a shift in financial reporting quality.

Practical implications- This study has important implications for regulators and policy-makers to address the conflict between insiders and outsiders by promoting a higher standard of financial reports.

The study also may be useful to investors, aiding them in financial deci-sion-making and helping all stakeholders understand and trust the fairness and quality of fi-nancial information.

In addition, it helps to understand the role that an effective audit com-mittee plays in external audit quality and financial reporting quality.

Finally, the study also contributes by bringing a new perspective on how external audit quality engages in monitor-ing by requesting financial reporting quality.

Originality/ value – The main contribution of the current paper is to examine the audit fees (audit quality) as a potential mediating variable between the effective audit committee and financial reporting quality.

JEL Classification G40, M41, M42