Effective Audit Committee and Financial Reporting Quality: the Mediating Effect of Audit Quality:Evidence from KSA

The purpose-This study aims to examine the mediating effect of audit quality on the relationship 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 sample 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 policymakers 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 decision-making and helping all stakeholders understand and trust the fairness and quality of financial information. In addition, it helps to understand the role that an effective audit committee 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 monitoring 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