The effect of corporate governance mechanisms on audit quality: evidence from the UK FTSE 350 listed companies

Abstract

Corporate governance has received wider attention from society and legislators demanding more solid corporate governance. Simultaneously, audit quality has received increasing attention as it is considered a crucial part of corporate governance. This study investigated corporate governance and audit quality using the sample of FTSE-350 companies from the period of 2014-2019. The variables that were included as corporate governance aspects were board independence, board diversity and audit committee effectiveness and audit quality proxy was audit fees. The result of this study is consistent with many auditing studies that suggest indeed corporate governance mechanisms can affect audit quality. Board independence is negatively associated with audit fees, while board diversity and audit committee effectiveness are significantly, positively associated with audit fees. The results are important for regulators to improve the governance mechanisms and introduce more solid rules in order to preserve financial statement integrity and a clean audit opinion. This paper contributes to the overall corporate governance literature, specifically in the effect of women on the board of directors on audit quality.