Las características de las asociaciones de la junta directiva con la opinión de auditoría modificada
| Autor | Waddah Kamal Hassan Omer, Khaled Salmen Aljaaidi, Mohd Atef Md Yusof, Mohamad Hisyam Selamat |
| Cargo | PhD University Utara Malaysia. Department of Accounting, College of Business Administration Northern Border University, Arar, Saudi Arabia, and Accounting Department, Faculty of Administrative Sciences, University of Aden, Yemen/PhD University Utara Malaysia. Accounting Department, College of Business Administration, Prince Sattam bin Abdulaziz... |
| Páginas | 5-34 |
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AD-MINISTER
WADDAH KAMAL
HASSAN OMER
KHALED SALMEN ALJAAIDI
MOHD ‘ATEF MD YUSOF
MOHAMAD HISYAM SELAMAT
JEL: G AND M
Received: 12/04/2020
Modified: 28/09/2020
Accepted: 24/11/2020
DOI: https://doi.org/10.17230/
Ad-minister.37.1
THE ASSOCIATIONS of BOARD OF DIRECTORS’
CHARACTERISTICS WITH MODIFIED AUDIT OPINION
LAS CARACTERÍSTICAS DE LAS ASOCIACIONES DE LA JUNTA DIRECTIVA CON LA OPINIÓN DE AUDITORÍA MODIFICADA
ABSTRACT
This study aims to find a relationship between board of directors’ characteristics and the likelihood that
a company receives a modified audit opinion (as a measure of the external reporting of companies) in
Malaysia. To test our hypotheses, we use the pooled cross-sectional logistic regression analysis for 136
firm-year observations listed on Bursa Malaysia over the period 2009-2011.The evidence we uncover is
consistent with the hypotheses that companies with large board size and greater financial expertise of
the board of directors are less likely to receive a modified audit opinion. The results obtained in this study
are consistent with the listing rules of the Malaysian-Corporate-Governance Code and the requirements
of the Bursa Malaysia Corporate-Governance-Guide, which consider and the requirements of the Bursa
Malaysia Corporate-Governance-Guide, which consider the significance of the board of directors as an
aspect of good corporate governance and its critical role in the Malaysian financial reporting process.
KEYWORDS
Modified audit opinion, financial reporting quality, board of directors’ characteristics, Malaysia.
RESUMEN
El objetivo de este estudio es investigar, para el caso de Malasia, la relación entre las características de las
juntas directivas y la probabilidad de que una compañía reciba una opinión de auditoría modificada (como
una medida de la calidad de la información financiera externa de las compañías). Para probar nuestras
hipótesis utilizamos 136 observaciones de empresas por año, las cuales están registradas en Bursa Malasia
para el período 2009-2011, e hicimos un análisis de regresión logística transversal agrupada. La evidencia
que obtuvimos es consistente con la hipótesis de que las empresas con una junta directiva de gran tamaño
y mayor capacidad financiera tienen una probabilidad menor de recibir una opinión de auditoría modificada.
Los resultados hallados en este estudio son consistentes con las reglas del registro del Código de Gobierno
Corporativo de Malasia y los requisitos de la Guía de Gobierno Corporativo de Bursa Malasia, los cuales
consideran la importancia de las juntas directivas como uno de los aspectos del buen gobierno corporativo,
así como su papel fundamental en el reporte de información financiera en Malasia.
PALABRAS CLAVE
Opinión de auditoría modificada, calidad de la información financiera, características de la junta
directiva, Malasia.
1 PhD University Utara Malaysia. Department of Accounting, College of Business Administration
Northern Border University, Arar, Saudi Arabia, and Accounting Department, Faculty of Administrative
Sciences, University of Aden, Yemen Email: waddahkam@yahoo.com ORCID: https://orcid.org/0000-
0001-9777-7497
2 PhD University Utara Malaysia. Accounting Department, College of Business Administration, Prince
Sattam bin Abdulaziz University Email: k.aljaaidi@psau.edu.sa
ORCID: https://orcid.org/0000-0002-0661-6813
3 PhD University Utara Malaysia. School of Accounting, College of Business Universiti Utara Malaysia
06010 Sintok, Kedah, Malaysia. Email: atef@uum.edu.my
4 PhD Brunel University London. Faculty of Business, Accountancy and Management, SEGi University,
Petaling Jaya, Malaysia. E-mail: mohdhisyam@segi.edu.my
AD-minister Nº. 37 julio - diciembre 2020 pp. 5 - 34 · ISSN 1692-0279 · eISSN 2256-4322
Waddah Kamal Hassan Omer · Khaled Salmen Aljaaidi · Mohd ‘Atef Md Yusof · Mohamad Hisyam Selamat
The associations of board of directors’ characteristics with modified audit opinion
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AD-MINISTER
INTRODUCTION
In recent times, a series of giant companies from around the world collapsed,
including such firms as Enron and WorldCom in the US, Parmalat, Ahold, Gescartera
and BBVA in Europe (to name a few). It has been shown that most corporate failures
can be caused by the lack of internal monitoring of management in the financial
reporting process, arising from poor corporate governance of companies (Agrawal &
Chadha, 2005; Deng & Wang, 2006; Charitou et al., 2007; Che Haat et al., 2008; Lin
& Hwang, 2010; Darus & Mohamad, 2011). Malaysia is not an exception, albeit the
Malaysian Code on Corporate Governance (MCCG) and Bursa Malaysian corporate
governance Guide strengthens, incrementally, the eorts towards enhancing corporate
governance. There are still many questionable marks on the financial reporting quality
since pervasive cases of fraudulent financial reporting and failures (e.g., Megan
Media Hodlings Berhad, NasionCom Hodlings Berhad, United U-LI Corporation
Berhad and Transmile Group Berhad) have emerged in the marketplace. Under such
circumstances, several of these cases were given a modified audit opinion, as the
result of lower financial reporting quality. Therefore, these cases of corporate financial
reporting failures have raised questionable marks on the financial reporting quality,
and the eectiveness of the board of directors, as one of vital internal corporate
monitoring mechanisms on management in Malaysian setting. As such, this can
enhance the financial reporting quality (Johari et al., 2008; Darus & Mohamad, 2011).
Thereby, this study attempts to answer the following question: Does the board of
directors’ characteristics in individual and aggregated tests (i.e., independence, size,
meetings and financial expertise) decrease the probability of Malaysian publicly listed
companies in receiving a modified audit opinion?
There are several studies that have examined board of directors’ characteristics
and the possibility of a company receiving a modified audit opinion (Sanchez-
Ballesta & Garcia-Meca, 2005; Firth et al., 2007; Rusmin et al., 2009; Farinha & Viana,
2009). These studies have uncovered mixed and inconclusive results, due to the
omission of important determinants (Vafeas & Theodorou, 1998). Notably, it is well
documented by the extant research in other disciplines that board of directors’
financial expertise is considered one of the crucial factors in increasing the board
of directors’ eectiveness and monitoring the role that it plays. Consequently, a
positive impact of the financial expertise of those sitting on the board may enhance
reporting quality (Carcello et al., 2002; George, 2003; Lin et al., 2003; Park & Shin,
2004; Bedard et al., 2004; Cohen et al., 2008). In this regard, board members with
financial expertise would be able to rectify potential financial problems before they
become bigger. As such, the directors who have sucient expertise in financial
matters, greater understanding in accounting principles, and are able to ask the
right questions and understand the answers, will have a positive influence on
the quality of the financial reporting. Ultimately, the probability of obtaining an
unmodified audit opinion is increased.
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