Saeed Rabea Baatwah, Waddah Kamal Hassan Omer and Khaled Salmen Aljaaidi
This study aims to examine the effect on audit efficiency of outsourced internal audit function (IAF) providers with industry and/or firm-specific expertise. Drawing on relevant…
Abstract
Purpose
This study aims to examine the effect on audit efficiency of outsourced internal audit function (IAF) providers with industry and/or firm-specific expertise. Drawing on relevant studies from external and internal audit literature, the authors assume that such IAF providers are associated with greater audit efficiency as proxied by audit report lag and audit fees.
Design/methodology/approach
Based on a sample of firms listed on the Omani capital market during 2005–2019, the pooled regressions are used to test the developed hypotheses. The authors use the market share approach to identify outsourced IAF industry expertise providers and tenure to measure the firm-specific expertise of outsourced IAF providers.
Findings
The authors find that industry outsourced IAF providers are not associated with shorter audit report lag and lower audit fees. The authors also find that firm-specific expertise outsourced IAF providers are associated with a greater reduction in audit report lag and audit fees. These conclusions are robust under a battery of analyses. The significant contribution of firm-specific expertise outsourced IAF providers to audit efficiency is incremental when abnormal audit report lag and audit fees analysis is conducted.
Originality/value
The results are the first to attest to the contribution of outsourced IAF with firm-specific expertise. They also show that industry expertise held by outsourced IAF providers does not contribute to audit efficiency.
Details
Keywords
Waddah Kamal Hassan Omer and Adel Ali Al-Qadasi
Responding to the call for research into the behavior of family companies to provide better understanding of corporate governance, this paper aims to examine the impact of boards’…
Abstract
Purpose
Responding to the call for research into the behavior of family companies to provide better understanding of corporate governance, this paper aims to examine the impact of boards’ effectiveness on the investment in monitoring costs (i.e. audit fees, internal audit function budget and executive remuneration) and how this relationship is moderated by family control.
Design/methodology/approach
A sample of 2,176 firm-year observations of Malaysian listed companies is used. The ordinary least square regression is used to examine the associations. Additional sensitivity tests are performed.
Findings
The study finds that there is no relationship between boards’ effectiveness and the demand for monitoring costs for the full sample. However, the findings of sub-samples (family and non-family companies) indicate that a family company with an effective board is less likely to invest more in monitoring, suggesting that the complementary association between the board’s effectiveness and investment in monitoring is a more dominant relationship than the substitution relationship in non-family companies. These findings show that the boards of directors of Malaysian family companies perform a deficient monitoring role, where the presence of family controlling shareholders in management may reduce their independence and efficiency in performing their monitoring role. The findings remain robust after performing additional sensitivity tests.
Originality/value
This paper contributes to the literature on corporate governance in a unique setting (family companies), where conflict of interest is created between controlling insiders and minority shareholders (Type II agency problem). It provides insight for Malaysian policymakers in assessing the issue of expropriation in family companies and enhancing the policy related to its boards.