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The Role of Board Independence in Enhancing External Auditor Independence

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  • Osama Elsayed Abdelmaksoud Fathelbab

    (Department of Accounting, College of Business Administration, King Faisal University, Al-Ahsa 31982, Saudi Arabia)

  • Hamzeh Yousef Abu Quba’

    (Critical Eye for Auditing and Financial Consultations, P.O. Box 1179, Amman 11947, Jordan)

Abstract

Legislative regulations have recognized the significance of board independence in enhancing the board’s role and strengthening its autonomy, which are among the key features that mitigate conflicts of interest between management and shareholders. External auditing serves as a pivotal element of corporate governance, acting as a monitoring mechanism to reduce information asymmetry and safeguard principal interests by ensuring the accuracy and fairness of financial statements. This, in turn, reassures data users and stakeholders. The study aimed to examine the effect of board independence on enhancing external auditor independence among 72 Jordanian service companies listed on the Amman Stock Exchange from 2017 to 2021, with a study sample of 62 companies. The findings revealed a negative impact of board member independence on external auditor independence, as measured by audit firm size. However, company size positively influenced external auditor independence, while no effect was found for financial leverage or company age. The findings highlight the need for companies to strengthen internal controls and governance practices to enhance external auditor independence. Additionally, they suggest that company size plays a crucial role, while other factors like financial leverage and company age may have limited impact, indicating areas for further exploration in future research.

Suggested Citation

  • Osama Elsayed Abdelmaksoud Fathelbab & Hamzeh Yousef Abu Quba’, 2024. "The Role of Board Independence in Enhancing External Auditor Independence," JRFM, MDPI, vol. 18(1), pages 1-12, December.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2024:i:1:p:13-:d:1557322
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    References listed on IDEAS

    as
    1. Rina Yuliastuty Asmara and Rini Situanti, 2018. "The Effect of Audit Tenure and Firm Size on Financial Reporting Delays," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 115-126.
    2. Gilles Hilary & Sudipto Dasgupta & Xing Chang, 2009. "The Effect of Auditor Quality on Financing Decisions," Post-Print hal-00481935, HAL.
    3. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    4. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    5. Stefan Sundgren & Tobias Svanström, 2013. "Audit office size, audit quality and audit pricing: evidence from small- and medium-sized enterprises," Accounting and Business Research, Taylor & Francis Journals, vol. 43(1), pages 31-55, February.
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