Audit committee composition and auditor reporting: a study in Malaysian environment / Roziani Ali

In the wake of corporate failures following economic crisis starting in 1997, the role of
audit committees as corporate governance mechanism has became more important to
regulators, the accounting profession and the business community.
A research was conducted by Carcello and Neal (2000) examining the relation between
the composition of financially distressed firm's audit committees and the likelihood of
receiving going-concern report for the year 1994. Hence, this study is conducted to
examine the same relation in Malaysian context by examining published information for
the year 1998.
While previous study found an inverse relationship between percentage of affiliated
directors on audit committee and the likelihood of receiving modified going concern
report, this study finds insignificant positive relationship between the variables. The
result of the study therefore does not support many parties such as the shareholders and
Kuala Lumpur Stock Exchange's concern about financial-reporting quality and the
recent calls for more independent audit committee. The study document evidences that
the likelihood of receiving a going concern report for financially distressed firms is not
significantly affected by the audit committee composition.