Effective Audit Committee and Financial Reporting Quality: the Mediating Effectof Audit Quality:Evidence from KSA

The purposeThis study aims to examine the mediating effect of audit quality on the rela- tionship between the effective audit committee and financial reporting quality. Design/ methodology/ approachThe research uses multiple regression analysis to test the relationship between the effective audit committee and financial reporting quality. The sam- ple consists of 77 nonfinancial firms listed on the Saudi stock market between 2014 and 2021. FindingsEmpirical findings show that studies on effective audit committees and financial reporting quality displayed mixed results. The study findings indicate that audit quality has a mediation effect on the relationship between audit committee characteristics (more oversized Audit Committee, financial expertise, frequent meetings, gender diversity, independent members) and financial reporting quality. The study findings indicate that a change in audit committee effectiveness brings a change in audit quality, and a difference in audit quality brings a shift in financial reporting quality. Practical implicationsThis study has important implications for regulators and policy- makers to address the conflict between insiders and outsiders by promoting a higher standard of financial reports. The study also may be useful to investors, aiding them in financial deci- sionmaking and helping all stakeholders understand and trust the fairness and quality of fi- nancial information. In addition, it helps to understand the role that an effective audit com- mittee plays in external audit quality and financial reporting quality. Finally, the study also contributes by bringing a new perspective on how external audit quality engages in monitor- ing by requesting financial reporting quality. OriginalityvalueThe main contribution of the current paper is to examine the audit fees (audit quality) as a potential mediating variable between the effective audit committee and financial reporting quality. JEL ClassificationG40, M41, M42Keywords: Effective Audit Committee, Audit Quality, Financial Reporting Quality Paper Type:Research paper