The impact of corporate governance mechanisms on audit quality of Shari'ah compliant companies

• Published in: International Journal of Economic Research
• Main Author: Kasim N.; Hashim N.A.B.; Salman S.A.
• Format: Article
• Language: English
• Published: Serials Publications 2015
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-84962449689&partnerID=40&md5=d97888d472235a24fff8fe39f78a47a0

This study examines the effectiveness of corporate governance mechanisms on audit quality which is proxied by audit fees. Specifically, this study investigates the effect of corporate governance mechanisms on audit quality of Shari'ah compliant companies in Malaysia.Higher quality audit is defined as a higher credibility offered by auditors in their audit work which improved the reliability of financial statements. Corporate governance mechanisms for this study focuses on the board of directors and includes board size, CEO-duality, independent directors, and the financial expertise of the audit committee and internal Shari'ah committee. The sample consists of 100 top Shari'ah compliant companies in Malaysia based on market capitalization by Bursa Malaysia. Using multiple regressions, the significant relationship with audit quality and board size, and their positive relationship shows the higher the board size, the better the audit quality. The control variable used in this study, i.e. leverage,also has a significant positive relationship with audit quality. The findings show that highly leveraged firms demand quality audits. Apart from contributing to past literature on corporate governance and audit quality, this study provides inputs to regulators to encourage strict enforcement for Shari'ah compliant companies to incorporate governance practices, especially concerning board structure and it provides information for directors to become more resourceful in order to improve their relationship with auditors. © Serials Publications.