Master of Science in Accounting (MAcc)Accounting Department

Course No: ACCT 632Course Name: Forensic AccountingResearch Proposal

Academic Year: 2-1438-1439Instructure: Dr. Ahmad Alsalman

Student. No:381225520Student Name:Nawal Alharbi

Points earne

dfrom

10

Points earnedfrom100

Maximum pointsTraitsObjectiveNo

220

Identify and summarize the

research problem and state the

research question

Students will demonstrate that they are

critical thinkers

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110Identify the

purpose of your research

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110Identify the importance of your research

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110Identify the

accounting issue of your research

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220Identify and

summarizes the literature review

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220Identify the

research hypothesis

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220Identify the

research model and the variables

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110Identify the data and sample

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12120Total

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Research proposal

The extent of impact of audit new committee as one a pillars of governance in improving the quality of accounting information.

(an empirical study shareholding companies in Saudi Arabia)

جودة تحسين في الحوكمة دعائم كأحد الجديدة المراجعة لجنة تأثير مدىالمحاسبية .المعلومات

( السعودية المساهمة شركات في تطبيقية (دراسة

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Abstract:This Study examined the impact of new committee on the quality of Accounting Information, an empirical study on shareholding companies listed in Saudi Financial Market. Where they were addressed to the concept of audit committees and the statement of it’s importance and its the role on improving quality of accounting information, this study has been used the Inductive analytical method in the study by collecting data from its sources of primary and secondary, where data was collected through a questionnaire specially prepared for this reason, have been using the Statistical Package for the Social Sciences (SPSS) in analyzing the data and testing the suggestion hypotheses. Where was reached to several results, including the found that there impact significantly by the audit committees on the quality of accounting information, makes it more accurate in a community of study.Furthermore, the auditors should be fully understand of the concept and laws of audit committee and the foundations of their application in shareholding companies listed on Saudi Financial Market.

Introduction:As a result of the spread of globalization in the various countries of the world, especially in Saudi Arabia, and the continuous development of corporate activities under the current local and international laws, regulations and standards which have become different levels of complexity and precision.In addition,the crisis of confidence that plagued of the accounting profession in the last years of the last decade as a result of the collapse of many major companies in the world, such as Enron, Worldcom and Arthur (Andersen)led to the emergence of certain terms and concepts associated with performance control and accounting practices (Rahili, 2008, p. 180).

Audit committees became one of the most effective tools in controlling shareholding companies. In 1976, the US Congress recommended the establishment of audit committees in joint stock companies (Bronson et al., 2009) , the Saudi laws also recognized the necessity of forming review committees in joint stock companies as a result of the diversity and importance.The objectives of these committees are to verify the effectiveness of the internal control system and to make recommendations to the Board of Directors with a view to developing internal controls in line with the company's objectives and protects the interests of investors, then the Saudi Capital Market Authority (Habbash, 2012: 35-36).

The new corporate system for the year 1437 AH / 2015 included among its articles of the organization of joint stock companies what he called «Audit Committee».Hence the latest study to examine the importance of the role and activation of the Audit Committee in Saudi Joint Stock Companies as a tool of governance and a key element of their mechanisms to improve the quality of accounting information.

Problem of the Study :The major developments in the economy of Saudi Arabia led to increased investments and the number of companies from a very limited number to hundreds of companies operating in various financial, banking, commercial, industrial and agricultural activities ,and at same a time there were Increased in cases of financial failure,fraud and manipulation of many them, there was a few controls in the audit system not enough to address all corporate issuesThe collapse of many companies has resulted in the loss of stakeholder rights, especially existing investors, and the loss of confidence of prospective investors in the quality of accounting information contained in the financial statements and external audit reports of these companies (Bushman & Smith, 2001: 249).

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Therefore the decision of the Ministry of Commerce No. 903 was issued in 1994 to establish a review committee in the Saudi joint stock companies. However, it did not last long as this experience faced some difficulties and some criticism was encountered in the practical application by researchers and interested parties. Some companies were not able to form these committees in the required manner, while others were limited to the role of the committee only on nominate the external auditor (Rahili, 2008, p. 199).Therefore, in this study emphasis will be placed on determining the impact of the new audit committee on improving the quality of the accounting information in Saudi joint stock companies. Accordingly, the study problem can be formulated in the following main question:Are the new audit committee impacting as one of the pillars of governance in improving the quality of accounting information in Saudi joint stock companies?And the following sub-questions stem from the previous question:

• Are the functions and responsibilities of the Audit Committee helpful in improving the quality of accounting information in Saudi joint stock companies?• Does the independence of the Audit Committee help improve the quality of accounting information in Saudi joint stock companies?• Does the financial and accounting experience of the Audit Committee members improve the quality of accounting information in Saudi joint stock companies?

Purpose of the Study:

The main objective of the research is to seek how the new audit committee as one of the pillars of governance is impacting in improving the quality of accounting information in Saudi joint stock companies. This objective is achieved through the following sub-objectives:

Find if the functions and responsibilities of the audit committee are helpful in improving the quality of accounting information in Saudi joint stock companies.

Identify how independence of the audit committee helps in improving the quality of accounting information in Saudi joint stock companies.

Identify how the financial and accounting experience of the audit committee members improve the quality of accounting information in Saudi joint stock companies.

Importance of the Study :

These developments in the economy of Saudi Arabia have led to increased investments and the enormous tasks and responsibilities of the Board of directors.It was necessary to form Some a committees in joint stock companies as a result of the diversity and importance of the role played by these committees ,including the audit committee to assist the Board of Directors in carrying out its duties, to monitor the work of companies and to pay attention to contributing companies,the quality of accounting information and financial reporting,maintaining the independence of the external auditor and risk assessment.The scientific importance of the study stems from the recognition of the theoretical framework of the audit committee, the examination of processes of internal and external audits, the review of ethical compliance, governance arrangements and their impact on improving the quality of accounting information.The practical importance of this study is that it calls for the identify the rules and elements of this committee to strengthen the control structure of the joint stock companies and to benefit from the auditing profession in developing the quality of accounting information.

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Literature Review:Although there are a number of studies that dealt with audit committees and the quality of

financial reports,there were no studies on the impact of the audit committee in the new Saudi

corporate system on the quality of accounting information. The following is a brief presentation of

the most important of these studies:

Al-Shadly, I. (2013). The role of external audit in improving the quality of accounting information: A field study at the offices of the governors of Biskra state. The study aimed to identify the role and performance of the external auditor in improving the quality of accounting information. The researcher analyzed the results of the survey conducted by a sample of accountants in Algeria. The results indicate that the external audit works to increase the ability to reach accounting information through the preparation of the final report of the auditor, which contains the information contained in the financial statements, and the independence and impartiality of the external auditor enhance the confidence expressed in his report on accounting information.

Ahmed, S. R. (2011). The Role of Audit Committee as a Supportive Tool of Corporate Governance on Enhancing the Quality of Financial Reports: An Applied Study on Egyptian Pharmaceutical Corporations.In the study , the objective was to identify the role of audit committees in improving the quality of financial reports in the Arab Republic of Egypt. To achieve this objective, the various studies related to governance, audit committees and financial reports were analyzed, and analyzing the relationship between the characteristics of the audit committees in the pharmaceutical companies listed on the Egyptian Stock Exchange and the possibility of the company receiving a clean report as a measure of the quality of its financial reports. The study found a positive impact on the independence, size and financial expertise of the audit committee members in the external audit report.

Al-Moutaz, I. S., & Basfar, A. S. (2010). Role of Audit Committees in Activating Corporate Governance: An Empirical Study on Saudi Joint Stock Companies.This study aimed at identifying the role of the audit committees in activating the governance of Saudi joint stock companies by studying five main axes of governance: financial statements, internal control system, internal auditor, external auditor, and risk management. The researchers designed a questionnaire to identify the perspectives of three categories of joint stock companies: CEO, CFO, and internal auditor. The results showed that there is no role for the audit committees in activating the governance of Saudi joint stock companies through the five study axes.

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Luohe et al.,(2008).Board monitoring audit committee effectiveness, and financial reporting quality: Review and Synthesis of Empirical Evidence.This study aimed to highlight the important role of governance tools in improving the various features of the quality of financial reports in Canada on a sample of 50 companies.This study aimed to measure governance by examining the components of some of the characteristics of the board of directors,management and examination of the components of the audit committee's characteristics such as the independence of the members of the committee and their financial expertise, linking these different components of the board and the audit committee to the quality of the financial reports. The study found that the independence of the board is the most effective deterrent to reducing misleading financial reports. In order for the audit committee to be effective, it must be characterized by activity, expertise and independence.

Mohammed. (2010). The Difficulties of the Audit Committee's Role in Turning Different Directions to the Modern Business Environment in the Light of International Professional Publications and the Rules of Corporate Governance in Egypt.The problem of the study the need to assess the extent of difficulties or obstacles in the Egyptian business environment, which limits the audit committee's role towards the different parties in the application of the rules of corporate governance. This study tested hypotheses follow, the realization of the Egyptian business environment of the relationship of the Audit Committee in the Board of Directors represents the difficulty in the performance of the Audit Committee for its role in the application of the rules of corporate governance. The understanding of the Egyptian business environment of the Audit Committee's relationship with the internal auditor represents a difficulty in the performance of the Audit Committee.The understanding of the Egyptian business environment of the controls required in the relationship of the Audit Committee with the External Auditor represents a difficulty in the performance of the Audit Committee for its role in the application of the rules of corporate governance The study concluded that the number of independent members of the Board of Directors should be increased to reflect positively the reasons for the composition of the Audit Committee, the necessity of transition to the implementation of the Corporate Governance Rules and the expansion of the Audit Committee.

Musa & Venancio, (2008).Audit Committees and Voluntary ExternalAuditor Involvement in UK Interim Reporting.This study examined the relationship between the characteristics of the Audit Committee in terms of the size of the Committee, the number of its meetings, the financial expertise of its members, the independence they enjoy and the percentage of shares owned by members of the Audit Committee.The study sample consisted of 258 British companies listed in the UK financial market, whose interim reports were published in the period 2001-2003. The study data were analyzed through the multiple regression model. The study concluded that the possibility of appointing the external auditor for examination progress reports increase with the independence and financial expertise of the members of the Audit Committee. This

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possibility is reduced when members of the Audit Committee have ownership in the Company's shares.

Al-Ruhaili, A. S. (2008). Audit Committees as a pillar of corporate governanceAl-Ruhaili focused on the application of the concept of governance with the assistance of the Audit Committees in the Kingdom of Saudi Arabia in order to achieve disclosure and transparency. The study used the questionnaire to collect data from the Saudi joint stock companies. The results revealed that the audit committees in the Saudi joint stock companies play an important role in applying the concept of governance as it acts as a link between the supervisory bodies in the company and the board of directors.This study also explained that audit committees faced some problems and difficulties which in turn influenced the performance of the tasks assigned Including the lack of clarity of the objectives, tasks and scope of the work of these committees, which led to the formation of a working group to study and evaluate ended with a recommendation to reconsider.

Pucheta‐Martínez, M. C., & De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context.This study examined the relationship between the characteristics of the audit committee and the external auditor's report. The study showed that the company's receipt of a clean audit report is a measure of the quality of the financial information disclosed by the company. This study was applied to Spanish companies listed in the financial market and the study sample consisted of (380) Spanish companies listed in the financial market in Spain during the period 1999-2001. The study concluded that the audit committees will be more effective in supervising the preparation of financial statements and reducing the disputes between management and the external auditor, where this reduces the likelihood that the company will receive from the external auditor a report containing reservations resulting from accounting errors or non-compliance with the required standards, and that the concentration of ownership affects the possibility of the company receiving a conservative report resulting from errors or non-compliance.

Hypotheses of the Study:

The main hypothesis is that there is a statistically significant relationship between the new audit committee and the quality of the accounting information in the Saudi joint stock companies, and the following hypothesises emerges:

The clarity of functions and responsibilities of the Audit Committee contribute in achieving the quality of accounting information in the Saudi joint stock companies

The degree of independence of the Audit Committee affects the quality of accounting information in Saudi Joint Stock Companies

The financial and accounting experience of the Audit Committee members has an impact on the quality of accounting information.

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Methodology of the study:

In order to achieve the objectives of the study was used follow sources in collecting the necessary data and information:

1. The Inductive method: Based on this analysis has been extrapolated of the most important studies and research related to the concept and importance of audit committees, and the impact of audit committees on improving the quality of accounting information.

2. The primary sources was sought by designing a questionnaire which was divided into three categories related to the work of the audit committees: executive managers, internal auditors and financial managers working in joint stock companies in Saudi, and then analyze data using the SPSS program

Study Variables:

The dependent variable The independent variable:

The qualityof

accountinginformation.

The new audit committee under corporate governance.

Study Model:QAI=β0 +β1(NAC i)+β2(FRi)+β3(I i)+β4(E i)+∪i

Symbol Definition MeasurementDependent VariableQAI Quality of accounting

informationThe extent accuracy and correctness of the accounting information to be useful to its users through measures its qualitative characteristics

Independent variable:NAC New audit committee The tool of governance and

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Functions and responsibilities

Independence

Experience

controlling shareholding companies

FR functions and responsibilities of the Audit Committee

Commitment to the implementation of tasks and responsibilities specified by regulations and instructions

I Independence of the Audit Committee

Ability to exercise observation, judgment and judgment independently of management and objective evaluation

E Experience of the Audit Committee members

Ability of members to understand some of the accounting and auditing issues and simple concepts of the process of preparing reports and financial statements and aware of the nature of the company's activity.

Society and Study Sample:

The study population consists of the companies listed in the Saudi Stock Exchange,which in it all the necessary data are available to calculate the variables of the study,including executive managers, internal auditors and financial managers.

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References:

Ahmed, S. R. (2011). The Role of Audit Committee as a Supportive Tool of Corporate Governance on Enhancing the Quality of Financial Reports: An Applied Study on Egyptian Pharmaceutical Corporations. Jordanian Journal of Business Administration, 7(1), 43-66.

Al-Moutaz, I. S., & Basfar, A. S. (2010). Role of Audit Committees in Activating Corporate Governance: An Empirical Study on Saudi Joint Stock Companies. Journal of Economics and Management in King Abdul-Aziz University, 2(24), 193-239.

Al-Ruhaili, A. S. (2008). Audit Committees as a pillar of corporate governance. King Abdul Aziz Journal of Economics and Management, 22(1), 1-145.

Al-Shadly, I. (2013). The role of external audit in improving the quality of accounting information: A field study at the offices of the governors of Biskra state. Unpublished Master Dissertation, Algeria.

Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics, 32(1-3), 237-333.

Bronson, S. N., Carcello, J. V., Hollingsworth, C. W., & Neal, T. L. (2009). Are fully independent audit committees really necessary?. Journal of Accounting and Public Policy, 28(4), 265-280.

Dahdouh, H. A. (2008). The role of the Audit Committee in improving the adequacy and effectiveness of internal control systems in companies. Damascus University Journal of Economic and Legal Sciences, 24(1), 71-90.

Habbash, M. S. (2012). The Role of Corporate Governance in Reducing Profit Management Practices in Saudi Joint Stock Companies, Journal of Accountants, 72.

Musa, R. and Venancio, M. 2008 .Audit Committees and Voluntary External Auditor Involvement in UK Interim Reporting. International Journal of Auditing, 12(1).

Mohammed. (2010). The Difficulties of the Audit Committee's Role in Turning Different Directions to the Modern Business Environment in the Light of International Professional Publications and the Rules of Corporate Governance in Egypt.

Luohe, Labelle, R.Piot, C. Thornton, B. 2008. Board Monitoring Audit Committee Effectiveness, and Financial Reporting Quality: Review and Synthesis of Empirical Evidence.

Pucheta‐Martínez, M. C., & De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context. Corporate Governance: An International Review, 15(6), 1394-1412.

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