اثر ویژگی های کمیته حسابرسی در ارائه مجدد مالی در مالزی The Effect of Audit Committee Characteristics on Financial Restatements in Malaysia

Introduction A sudden surge in accounting disgraces in the past few years has resulted in the loss of public trust in large firms and auditors across the world. According to Abdullah et al. (2010), the issue of financial restatements continues to gain prominence as the number of restatements continues to grow following high-profile cases in recent years such as Tesco Plc‘s overstatement of their revenues in year 2014 after a shortfall of £250m was discovered in its estimated profits and the case of Enron, which restated their earnings after announcing a US$618 million loss in its 2001 third quarterly report. In both cases, share prices dropped drastically following the discoveries, resulting in huge losses to the shareholders of the firms. In most cases the restatements highlight the ineffectiveness of corporate governance and control in the firms. However, it is also known that Enron and Tesco are firms with good corporate governance practices whereby the audit committees comprise mainly of independent directors. The role of the independent director in overseeing firm’s operations to avoid financial restatement is debatable. Following this, concerns over the validity of the financial reports and the occurrence of financial restatements have been widely discussed according to the General Accountability Office (GAO). The role of the audit committee in monitoring financial statements is crucial in ensuring that shareholders’ trust on the financial report remains intact. The examples above also suggest serious issues faced by corporations across the world in ensuring their financial reports are accurately prepared according to the approved standards. ‘Revised Malaysian Code on Corporate Governance (henceforth RMCCG 2007) clearly mentions that audit committees have an important role in facilitating the financial reports’ compliance with approved financial reporting standards. To ensure this, the RMCCG2007 requires that all members of the audit committee to be financially literate and at least one be a member of an accounting association or body. This requirement is to ensure that the directors would be able to understand and interpret financial statements accurately, as part of their duty to monitor the firm’s internal control system. Prior studies in Malaysia find mixed results on the effectiveness of the audit committee in reducing financial restatements and earnings management activities (Ahmad, Houghton, & Yusof, 2006; Alkdai & Hanefah, 2012; Mohammad, Yusoff, & Nik,2015; Mohammad, Wasiuzzaman & Salleh, 2016; Mohd-Saleh, Iskandar, & Rahmat, 2007; Nelson & Devi, 2013; Rahmat, Iskandar, & Saleh, 2009; Mohd-Saleh, Iskandar & Rahmat, 2005). In developed countries, studies conducted by Abbott, Parker, and Peters (2004) suggest the role of audit committee independence in reducing financial restatement.