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The role of the audit committee in resolving auditor‐client disagreements: a Malaysian study

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  • Zalailah Salleh
  • Jenny Stewart

Abstract

Purpose - This paper aims to report the findings of semi‐structured interviews with management, external auditors and audit committee members in Malaysia concerning the role of the audit committee in resolving auditor‐client disagreements. Design/methodology/approach - An exploratory case study method was applied in seven publicly listed companies in Malaysia. In each company interviews were conducted with an audit committee chair/member, the finance manager/CFO and the external auditor. Findings - The study finds that, when the issue is very material, the audit committee plays a mediating role as a third‐party intermediary who provides assistance to resolve the dispute. The authority of the committee to act as a mediator comes from its oversight responsibilities, its understanding and awareness of possible issues and the members' accounting and business expertise. Mediation techniques used include controlling the agenda, gathering information, advising and solving problems. With two exceptions, the interviews indicate that the audit committee does not take sides when helping to resolve a dispute. The outcome from the mediation process is generally a compromise solution. Research limitations/implications - The study is based on 21 interviews undertaken in Malaysia. Hence, the findings may not be generalizable to other cultures and jurisdictions. Further, while a number of mediation techniques used by audit committees are identified, the paper does not examine in‐depth the mediation processes used in resolving disagreements. Originality/value - The study extends the auditor‐client negotiation literature by examining whether the audit committee plays a mediating role to help resolve disagreements. The findings demonstrate that audit committee effectiveness can extend beyond a pure oversight role to more active involvement in resolving contentious accounting issues.

Suggested Citation

  • Zalailah Salleh & Jenny Stewart, 2012. "The role of the audit committee in resolving auditor‐client disagreements: a Malaysian study," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 25(8), pages 1340-1372, October.
  • Handle: RePEc:eme:aaajpp:v:25:y:2012:i:8:p:1340-1372
    DOI: 10.1108/09513571211275506
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    Citations

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    Cited by:

    1. Niamh M. Brennan & Collette E. Kirwan, 2015. "Audit committees: practices, practitioners and praxis of governance," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 28(4), pages 466-493, May.
    2. Habiba Al‐Shaer & Mahbub Zaman, 2018. "Credibility of sustainability reports: The contribution of audit committees," Business Strategy and the Environment, Wiley Blackwell, vol. 27(7), pages 973-986, November.
    3. Taslima Akther & Fengju Xu, 2020. "Existence of the Audit Expectation Gap and Its Impact on Stakeholders’ Confidence: The Moderating Role of the Financial Reporting Council," IJFS, MDPI, vol. 8(1), pages 1-25, January.
    4. Dobija Dorota, 2019. "Institutionalizing Corporate Governance Reforms in Poland: External Auditors’ Perspective," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 27(3), pages 28-54, September.
    5. Habiba Al-Shaer & Muhammad Farhan Malik & Mahbub Zaman, 2022. "What do audit committees do? Transparency and impression management," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(4), pages 1443-1468, December.
    6. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).
    7. Mohamad-Yusof, Nor Zalina & Wickramasinghe, Danture & Zaman, Mahbub, 2018. "Corporate governance, critical junctures and ethnic politics: Ownership and boards in Malaysia," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 55(C), pages 33-52.
    8. Seemantini Pathak & Codou Samba & Mengge Li, 2021. "Audit committee diversity and financial restatements," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 899-931, September.
    9. Fengju Xu & Taslima Akther, 2019. "A Partial Least-Squares Structural Equation Modeling Approach to Investigate the Audit Expectation Gap and Its Impact on Investor Confidence: Perspectives from a Developing Country," Sustainability, MDPI, vol. 11(20), pages 1-21, October.

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