Evaluating Audit Quality through Audit Quality Disclosure: An Examination of Audit Committee Practices in Saudi Arabia

Abstract

This thesis explores current practices that audit committee members and audit committee attendees (ACMs) from a developing nation, Saudi Arabia, perform when trying to evaluate the audit quality of the audit firm. It also examines current approaches and challenges encountered while utilizing Key Audit Matters (KAMs) and Transparency Reports (TRs), and the necessity for Audit Quality Indicators (AQIs) (referred to as the audit quality disclosure).

I conducted semi-structured in-depth interviews with 29 ACMs and those who have influence over the practices of the audit committee. I used documents to triangulate different sources and add credibility and trustworthiness to the findings.

Theoretically, the study draws on the institutional logics perspective to understand the logic behind the current practices and beliefs. This study found that ACMs mainly use signals and clues that are obtained through the public domain, proposals, private sources, interactions with the auditors, and audit outputs to assess audit quality.

The findings clearly show the predominance of professional logic among the majority of ACMs, and naïve stakeholder logic among ACMs of small companies and ACMs who lack audit literacy in large companies. The majority of the study participants do not utilize KAMs and TRs and do not support disclosing AQIs as transparency logic tools for assessing audit quality, although some younger interviewees show some inclination towards them.

This thesis aims to broaden our understanding of the crucial role that audit committees are expected to play, particularly in evaluating audit quality. This role was broadly investigated in the audit committee effectiveness literature before. Furthermore, existing research on KAMs and TRs has largely overlooked their use in evaluating audit quality. Additionally, the literature on AQIs is scant, focusing mainly on identifying suitable AQIs and assessing their impact. Thus, this study attempts to shed light on these neglected but important realms of research.