The effect of those charged with governance and the adoption of the revised Thai standards on auditing (B.E. 2555) on audit quality

Abstract

This study investigates the effect of those charged with governance (TCWG) characteristics on audit quality during the mandatory adoption of the revised Thai Standards on Auditing (B.E.2555). The revised Thai Standards on Auditing (henceforth, “the revised TSAs”) aim to improve audit tasks and emphasize important roles of TCWG to collaborate with auditors to enhance audit quality. Previous studies have extensively explored audit quality especially in term of supply-side factors such as auditors’ and audit firms’ characteristics. Filling the gap in the existing literature, this paper examines four demand factors of audit quality which are management’s risk of manipulation, management’s family ownership, audit committee rotation, and audit committee’s accounting expertise. Based on the samples of listed companies in the Stock Exchange of Thailand in the period of 2009 to 2014, the results show that high potential manipulators are more likely to involve in lower level of audit quality. This association is more pronounced in the period after the revised TSAs adoption. Supporting the alignment effect, management with higher family ownership tend to support greater level of audit quality, especially after the revised TSAs adoption. However, there is no evidence of the association between audit committee’s traits and audit quality. These findings are robust to multiple additional approaches after controlling for auditor’s traits and confounding effect from accounting standards changes. Overall, this paper offers insight into the roles of TCWG on audit quality, provides early evidence of the revised TSAs adoption, and encourages harmonious cooperation among audit clients, auditors, and regulators to improve audit quality.