Audit committee attributes, audit quality and performance of oil and gas companies

https://doi.org/10.35912/ijfam.v5i4.1634
Published: Mar 18, 2024

Abstract:

Purpose: This study examines the audit committee attributes, audit quality, and financial performance of listed oil and gas companies in Nigeria.

Research methodology: Audit committee attributes were measured by audit committee size, audit committee independence, and audit committee financial expertise, and audit quality was measured by audit fees charged by an external auditor. Financial performance is measured in terms of earnings per share. The researcher used secondary data extracted from the ten listed oil and gas firms annual reports, and the accounts were analyzed using Panel Least Square.

Results: This study reveals a positive and statistically significant relationship between audit committee independence and earnings per share. It also shows that audit quality moderates audit committee attributes significantly and increases firm performance. This study recommends that maintaining high audit quality within the audit committee is crucial for a firm if it aims to offer increased assurance to investors and stakeholders concerning the precision and dependability of its financial statements.

Limitations: This study was limited to listed oil and gas companies in Nigeria ranging from to 2016-2022.

Contribution: This study examined factors that can moderate the relationship between audit committees and the financial performance of listed oil and gas companies in Nigeria. One such factor is audit quality, which can potentially enhance or diminish the impact of audit committee effectiveness on financial performance. No study conducted in Nigeria has examined this relationship specifically in the oil and gas sector. This knowledge gap served as the rationale for conducting this study.

Keywords:
1. Audit committee attributes
2. Financial Performance
3. Moderating the Effect of Audit Quality
Authors:
Paul Matudi Bako
Federal University Wukari, Taraba State, Nigeria
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How to Cite
Bako, P. M. (2024). Audit committee attributes, audit quality and performance of oil and gas companies. International Journal of Financial, Accounting, and Management, 5(4), 511–522. https://doi.org/10.35912/ijfam.v5i4.1634
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Issue & Section
Vol. 5 No. 4 (2024): March
Articles
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References

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    Al-ahdal, W. M., & Hashim, H. A. (2022). Impact of audit committee characteristics and external audit quality on firm performance: Evidence from India. Corporate Governance: The International Journal of Business in Society, 22(2), 424-445.

    Al-Ansi, A. A. (2022). The Moderating Effect of Audit Quality on the Impact of Audit Committee Characteristics and Performance: Evidence from Saudi Financial Companies. IUG Journal of Economics and Business Studies, 30(4).

    Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship between audit committee characteristics, external auditors and economic value added (EVA) of public listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.

    Al-Matari, E. M., Al-Swidi, A. K., Fadzil, F. H., & Al-Matari, Y. A. (2012). The impact of board characteristics on firm performance: Evidence from nonfinancial listed companies in Kuwaiti Stock Exchange. International Journal of Accounting and Financial Reporting, 2(2), 310-332.

    Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.

    Ameer, R., Ramli, F., & Zakaria, H. (2010). A new perspective on board composition and firm performance in an emerging market. Corporate Governance: The International Journal of Business in Society, 10(5), 647-661.

    Awwad, S. A. E., Norfadzilah, N. M., & Abdullah, F. (2020). Impact of Audit Committees on the Financial Performance: Evidence from Jordan. International Journal of Recent Technology and Engineering (IJRTE), 9(2).

    Baatwah, S. R., Salleh, Z., & Ahmad, N. (2015). Corporate governance mechanisms and audit report timeliness: empirical evidence from Oman. International Journal of Accounting, Auditing and Performance Evaluation, 11(3-4), 312-337.

    Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality. Accounting & finance, 49(2), 267-290.

    Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 443-465.

    Ben Barka, H., & Legendre, F. (2017). Effect of the board of directors and the audit committee on firm performance: a panel data analysis. Journal of Management & Governance, 21, 737-755.

    Bradbury, M. E. (1990). The incentives for voluntary audit committee formation. Journal of accounting and public policy, 9(1), 19-36.

    Buchalter, S. D., & Yokomoto, K. L. (2003). Audit committees' responsibilities and liability. The CPA Journal, 73(3), 18.

    Cadbury, A. (1992). The Financial Aspects of Corporate Governance. Retrieved from https://www.frc.org.uk/getattachment/9c19ea6f-bcc7-434c-b481-f2e29c1c271a/The-Financial-Aspects-of-Corporate-Governance-(the-Cadbury-Code).pdf

    Chan, K. C., & Li, J. (2008). Audit committee and firm value: Evidence on outside top executives as expert-independent directors. Corporate Governance: an international review, 16(1), 16-31.

    Chaudhry, N. I., Roomi, M. A., & Aftab, I. (2020). Impact of expertise of audit committee chair and nomination committee chair on financial performance of firm. Corporate Governance: The International Journal of Business in Society, 20(4), 621-638.

    Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.

    De Jong, A., DeJong, D. V., Mertens, G., & Wasley, C. E. (2005). The role of self-regulation in corporate governance: Evidence and implications from the Netherlands. Journal of Corporate Finance, 11(3), 473-503.

    DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.

    DeFond, M. L., Hann, R. N., & Hu, X. (2005). Does the market value financial expertise on audit committees of boards of directors? Journal of Accounting Research, 43(2), 153-193.

    Dellaportas, S., Alagiah, R., Gibson, K., Leung, P., Hutchinson, M., & Van Homrigh, D. (2005). Ethics, governance and accountability: A professional perspective.

    DeZoort, F. T., & Salterio, S. E. (2001). The effects of corporate governance experience and financial?reporting and audit knowledge on audit committee members' judgments. Auditing: A Journal of Practice & Theory, 20(2), 31-47.

    Enekwe, C., Nwoha, C., & Udeh, S. N. (2020). Effect Of Audit Quality On Financial Performance Of Listed Manufacturing Firms In Nigeria (2006-2016). Advance Journal of Management, Accounting and Finance, 5(1), 1-12.

    Ezejiofor, R. A., & Erhirhie, F. E. (2018). Effect of audit quality on financial performance: evidence from deposit money banks in Nigeria. International Journal of Trend in Scientific Research and Development, 2(6), 1235-1244.

    Franks, J., Mayer, C., & Renneboog, L. (2001). Who disciplines management in poorly performing companies? Journal of Financial Intermediation, 10(3-4), 209-248.

    Goh, B. W. (2008). Audit committees, boards of directors, and remediation of material weaknesses in internal control. Contemporary Accounting Research, Forthcoming.

    Gujarati, D. N., & Porter, D. (2009). Basic Econometrics: Mc Graw-Hill International Edition.

    Herdiansyah, E. K., & Kuntadi, C. (2022). Pengaruh Rotasi KAP, Ukuran Perusahaan dan Profesionalisme Auditor terhadap Kualitas Audit. Jurnal Multidisiplin Indonesia, 1(2), 684-690.

    Javeed, S. A., Ong, T. S., Latief, R., Muhamad, H., & Soh, W. N. (2021). Conceptualizing the moderating role of CEO power and ownership concentration in the relationship between audit committee and firm performance: empirical evidence from Pakistan. Sustainability, 13(11), 6329.

    Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

    Jusoh, M. A., & Ahmad, A. (2013). Managerial Ownership, Institutional Ownership, Audit Quality And Firm Performance In Malaysian. International Journal of Education and Research, 1(10), 1-16.

    Kalbers, L. P., & Fogarty, T. J. (1998). Organizational and economic explanations of audit committee oversight. Journal of Managerial issues, 129-150.

    Krishnan, G. V., & Visvanathan, G. (2008). Does the SOX Definition of an Accounting Expert Matter? The Association between Audit Committee Directors' Accounting Expertise and Accounting Conservatism. Contemporary Accounting Research, 25(3), 827-858.

    Meidona, S., & Yanti, R. (2018). Pengaruh Corporate Governance dan Kualitas Audit terhadap Kinerja Keuangan pada Perusahaan Lq45 yang Terdaftar di Bei. Jurnal indovisi, 1(1), 232803.

    Mgbame, C. O., Eragbhe, E., & Osazuwa, N. P. (2012). Audit partner tenure and audit quality: An empirical analysis. European Journal of Business and Management, 4(7), 154-162.

    Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147-163.

    Musallam, S. R. (2020). Effects of board characteristics, audit committee and risk management on corporate performance: evidence from Palestinian listed companies. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 691-706.

    Ogbodo, O. C., & Akabuogu, N. J. (2018). Effect of audit quality on the financial performance of selected banks in Nigeria. International Journal of Trend in Scientific Research and Development (IJTSRD), 3(1), 45-61.

    Oroud, Y. (2019). The effect of audit committee characteristics on the profitability: Panel data evidence. International Journal of economics and Finance, 11(4), 104-113.

    Phan, T., Lai, L., Le, T., & Tran, D. (2020). The impact of audit quality on performance of enterprises listed on Hanoi Stock Exchange. Management Science Letters, 10(1), 217-224.

    Qeshta, M. H., Alsoud, G. F. A., Hezabr, A. A., Ali, B. J., & Oudat, M. S. (2021). Audit committee characteristics and firm performance: Evidence from the insurance sector in Bahrain. Revista Geintec-Gestao Inovacao E Tecnologias, 11(2), 1666-1680.

    Rahman, R. A., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial auditing journal, 21(7), 783-804.

    Rashid, A. M., Jasim, S. R., & Saleh, A. F. (2021). An auditing quality determinants and their impact on Iraqi commercial banks financial performance (an applied study on a sample of nine banks from 2012 to 2018). Materials Today, 1, 9.

    Sarbanes, P., & Oxley, M. (2002). Public company accounting reform and investor protection act. Washington, DC: Government Printing Office.

    Smith, S. R. (2003). Audit Committees: Combined Code Guidance: Financial Reporting Council London.

    Soyemi, K., Afolabi, O. V., & Obigbemi, I. F. (2021). External audit quality and clients' corporate governance mechanisms in Nigeria: Any nexus? Journal of Research in Emerging Markets, 3(2), 44-59.

    Soyemi, K. A. (2014). Clients'/Auditors' attributes and external audit fees among listed nonfinancial companies in Nigeria. The Business & Management Review, 5(1), 131.

    Soyemi, K. A., Olufemi, O. A., & Adeyemi, S. B. (2020). External audit (or) quality and accrual earnings management: Further evidence from Nigeria. Malaysian management journal, 24, 31-56.

    Soyemi, K. A. A., Afolabi, O., & Obigbemi, I. (2021). External audit quality and clients’ corporate governance mechanisms in Nigeria. International Journal of Commerce and Finance, 7(1), 141.

    Wakaba, R. (2014). Effect of audit committee characteristics on financial performance of companies listed at the Nairobi securities exchange. University of Nairobi.

    Wardani, T. J., & Waskito, I. (2022). Pengaruh Fee Audit, Audit Tenure, Dan Rotasi Audit Terhadap Kualitas Audit (Studi Pada Perusahaan Manufaktur Yang Terdaftar Di Bursa Efek Indonesia Tahun 2018-2020). Jurnal Riset Mahasiswa Akuntansi, 2(1), 112-124.

    Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.

    Zábojníková, G. (2016). The audit committee characteristics and firm performance: Evidence from the UK.

    Zraiq, M., & Fadzil, F. (2018). The impact of audit committee characteristics on firm performance: Evidence from Jordan. Scholar Journal of Applied Sciences and Research, 1(5), 39-42.

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  2. Al-ahdal, W. M., & Hashim, H. A. (2022). Impact of audit committee characteristics and external audit quality on firm performance: Evidence from India. Corporate Governance: The International Journal of Business in Society, 22(2), 424-445.
  3. Al-Ansi, A. A. (2022). The Moderating Effect of Audit Quality on the Impact of Audit Committee Characteristics and Performance: Evidence from Saudi Financial Companies. IUG Journal of Economics and Business Studies, 30(4).
  4. Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship between audit committee characteristics, external auditors and economic value added (EVA) of public listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.
  5. Al-Matari, E. M., Al-Swidi, A. K., Fadzil, F. H., & Al-Matari, Y. A. (2012). The impact of board characteristics on firm performance: Evidence from nonfinancial listed companies in Kuwaiti Stock Exchange. International Journal of Accounting and Financial Reporting, 2(2), 310-332.
  6. Alqatamin, R. M. (2018). Audit committee effectiveness and company performance: Evidence from Jordan. Accounting and Finance Research, 7(2), 48.
  7. Ameer, R., Ramli, F., & Zakaria, H. (2010). A new perspective on board composition and firm performance in an emerging market. Corporate Governance: The International Journal of Business in Society, 10(5), 647-661.
  8. Awwad, S. A. E., Norfadzilah, N. M., & Abdullah, F. (2020). Impact of Audit Committees on the Financial Performance: Evidence from Jordan. International Journal of Recent Technology and Engineering (IJRTE), 9(2).
  9. Baatwah, S. R., Salleh, Z., & Ahmad, N. (2015). Corporate governance mechanisms and audit report timeliness: empirical evidence from Oman. International Journal of Accounting, Auditing and Performance Evaluation, 11(3-4), 312-337.
  10. Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality. Accounting & finance, 49(2), 267-290.
  11. Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 443-465.
  12. Ben Barka, H., & Legendre, F. (2017). Effect of the board of directors and the audit committee on firm performance: a panel data analysis. Journal of Management & Governance, 21, 737-755.
  13. Bradbury, M. E. (1990). The incentives for voluntary audit committee formation. Journal of accounting and public policy, 9(1), 19-36.
  14. Buchalter, S. D., & Yokomoto, K. L. (2003). Audit committees' responsibilities and liability. The CPA Journal, 73(3), 18.
  15. Cadbury, A. (1992). The Financial Aspects of Corporate Governance. Retrieved from https://www.frc.org.uk/getattachment/9c19ea6f-bcc7-434c-b481-f2e29c1c271a/The-Financial-Aspects-of-Corporate-Governance-(the-Cadbury-Code).pdf
  16. Chan, K. C., & Li, J. (2008). Audit committee and firm value: Evidence on outside top executives as expert-independent directors. Corporate Governance: an international review, 16(1), 16-31.
  17. Chaudhry, N. I., Roomi, M. A., & Aftab, I. (2020). Impact of expertise of audit committee chair and nomination committee chair on financial performance of firm. Corporate Governance: The International Journal of Business in Society, 20(4), 621-638.
  18. Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.
  19. De Jong, A., DeJong, D. V., Mertens, G., & Wasley, C. E. (2005). The role of self-regulation in corporate governance: Evidence and implications from the Netherlands. Journal of Corporate Finance, 11(3), 473-503.
  20. DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.
  21. DeFond, M. L., Hann, R. N., & Hu, X. (2005). Does the market value financial expertise on audit committees of boards of directors? Journal of Accounting Research, 43(2), 153-193.
  22. Dellaportas, S., Alagiah, R., Gibson, K., Leung, P., Hutchinson, M., & Van Homrigh, D. (2005). Ethics, governance and accountability: A professional perspective.
  23. DeZoort, F. T., & Salterio, S. E. (2001). The effects of corporate governance experience and financial?reporting and audit knowledge on audit committee members' judgments. Auditing: A Journal of Practice & Theory, 20(2), 31-47.
  24. Enekwe, C., Nwoha, C., & Udeh, S. N. (2020). Effect Of Audit Quality On Financial Performance Of Listed Manufacturing Firms In Nigeria (2006-2016). Advance Journal of Management, Accounting and Finance, 5(1), 1-12.
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  26. Franks, J., Mayer, C., & Renneboog, L. (2001). Who disciplines management in poorly performing companies? Journal of Financial Intermediation, 10(3-4), 209-248.
  27. Goh, B. W. (2008). Audit committees, boards of directors, and remediation of material weaknesses in internal control. Contemporary Accounting Research, Forthcoming.
  28. Gujarati, D. N., & Porter, D. (2009). Basic Econometrics: Mc Graw-Hill International Edition.
  29. Herdiansyah, E. K., & Kuntadi, C. (2022). Pengaruh Rotasi KAP, Ukuran Perusahaan dan Profesionalisme Auditor terhadap Kualitas Audit. Jurnal Multidisiplin Indonesia, 1(2), 684-690.
  30. Javeed, S. A., Ong, T. S., Latief, R., Muhamad, H., & Soh, W. N. (2021). Conceptualizing the moderating role of CEO power and ownership concentration in the relationship between audit committee and firm performance: empirical evidence from Pakistan. Sustainability, 13(11), 6329.
  31. Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
  32. Jusoh, M. A., & Ahmad, A. (2013). Managerial Ownership, Institutional Ownership, Audit Quality And Firm Performance In Malaysian. International Journal of Education and Research, 1(10), 1-16.
  33. Kalbers, L. P., & Fogarty, T. J. (1998). Organizational and economic explanations of audit committee oversight. Journal of Managerial issues, 129-150.
  34. Krishnan, G. V., & Visvanathan, G. (2008). Does the SOX Definition of an Accounting Expert Matter? The Association between Audit Committee Directors' Accounting Expertise and Accounting Conservatism. Contemporary Accounting Research, 25(3), 827-858.
  35. Meidona, S., & Yanti, R. (2018). Pengaruh Corporate Governance dan Kualitas Audit terhadap Kinerja Keuangan pada Perusahaan Lq45 yang Terdaftar di Bei. Jurnal indovisi, 1(1), 232803.
  36. Mgbame, C. O., Eragbhe, E., & Osazuwa, N. P. (2012). Audit partner tenure and audit quality: An empirical analysis. European Journal of Business and Management, 4(7), 154-162.
  37. Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147-163.
  38. Musallam, S. R. (2020). Effects of board characteristics, audit committee and risk management on corporate performance: evidence from Palestinian listed companies. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 691-706.
  39. Ogbodo, O. C., & Akabuogu, N. J. (2018). Effect of audit quality on the financial performance of selected banks in Nigeria. International Journal of Trend in Scientific Research and Development (IJTSRD), 3(1), 45-61.
  40. Oroud, Y. (2019). The effect of audit committee characteristics on the profitability: Panel data evidence. International Journal of economics and Finance, 11(4), 104-113.
  41. Phan, T., Lai, L., Le, T., & Tran, D. (2020). The impact of audit quality on performance of enterprises listed on Hanoi Stock Exchange. Management Science Letters, 10(1), 217-224.
  42. Qeshta, M. H., Alsoud, G. F. A., Hezabr, A. A., Ali, B. J., & Oudat, M. S. (2021). Audit committee characteristics and firm performance: Evidence from the insurance sector in Bahrain. Revista Geintec-Gestao Inovacao E Tecnologias, 11(2), 1666-1680.
  43. Rahman, R. A., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial auditing journal, 21(7), 783-804.
  44. Rashid, A. M., Jasim, S. R., & Saleh, A. F. (2021). An auditing quality determinants and their impact on Iraqi commercial banks financial performance (an applied study on a sample of nine banks from 2012 to 2018). Materials Today, 1, 9.
  45. Sarbanes, P., & Oxley, M. (2002). Public company accounting reform and investor protection act. Washington, DC: Government Printing Office.
  46. Smith, S. R. (2003). Audit Committees: Combined Code Guidance: Financial Reporting Council London.
  47. Soyemi, K., Afolabi, O. V., & Obigbemi, I. F. (2021). External audit quality and clients' corporate governance mechanisms in Nigeria: Any nexus? Journal of Research in Emerging Markets, 3(2), 44-59.
  48. Soyemi, K. A. (2014). Clients'/Auditors' attributes and external audit fees among listed nonfinancial companies in Nigeria. The Business & Management Review, 5(1), 131.
  49. Soyemi, K. A., Olufemi, O. A., & Adeyemi, S. B. (2020). External audit (or) quality and accrual earnings management: Further evidence from Nigeria. Malaysian management journal, 24, 31-56.
  50. Soyemi, K. A. A., Afolabi, O., & Obigbemi, I. (2021). External audit quality and clients’ corporate governance mechanisms in Nigeria. International Journal of Commerce and Finance, 7(1), 141.
  51. Wakaba, R. (2014). Effect of audit committee characteristics on financial performance of companies listed at the Nairobi securities exchange. University of Nairobi.
  52. Wardani, T. J., & Waskito, I. (2022). Pengaruh Fee Audit, Audit Tenure, Dan Rotasi Audit Terhadap Kualitas Audit (Studi Pada Perusahaan Manufaktur Yang Terdaftar Di Bursa Efek Indonesia Tahun 2018-2020). Jurnal Riset Mahasiswa Akuntansi, 2(1), 112-124.
  53. Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.
  54. Zábojníková, G. (2016). The audit committee characteristics and firm performance: Evidence from the UK.
  55. Zraiq, M., & Fadzil, F. (2018). The impact of audit committee characteristics on firm performance: Evidence from Jordan. Scholar Journal of Applied Sciences and Research, 1(5), 39-42.