Do Expertise in Audit Committees Impact Audit Quality? Evidence from Saudi Arabia

Abstract

This dissertation investigates the impact of audit committee (AC) characteristics on audit quality (AQ), using audit fees as a proxy, within the context of Saudi Arabia’s top 100 publicly listed firms in 2023. The study is motivated by the increasing focus on corporate governance (CG) reforms, driven by a series of high-profile corporate failures globally and the evolving regulatory landscape in Saudi Arabia, particularly under Vision 2030, which aims to enhance transparency and governance standards and attract international investment. The primary aim of this research is to assess the influence of financial expertise within ACs on AQ, further distinguishing between accounting and non-accounting expertise, and to examine the impact of AC members holding multiple directorships. Using a quantitative approach, the study employs ordinary least squares (OLS) regression analysis to evaluate the relationship between AC characteristics and AQ, with data manually collected from the Tadawul Saudi Exchange Stock website, annual reports, and financial statements. The findings reveal a significant positive impact of AC financial expertise on AQ, as evidenced by higher audit fees. However, when expertise is segregated into accounting and non-accounting categories, neither type significantly impacts AQ, suggesting that the combined presence of diverse expertise enhances AQ more effectively. Furthermore, AC members holding multiple directorships also show a significant positive correlation with audit fees, indicating their broader governance experience contributes to more rigorous audit processes. This dissertation contributes to the literature by providing empirical evidence from an emerging market, highlighting the distinct roles of various types of expertise within ACs and introducing audit fees as a proxy for AQ in Saudi Arabia—a novel approach that diverges from traditional proxies such as earnings management and audit firm type. The findings have practical implications for regulators, policymakers, and firms seeking to enhance CG structures, aligning with Vision 2030’s goals of fostering international confidence and bolstering economic diversification through improved governance practices.