The Role of Board Independence in Enhancing External Auditor Independence

Osama Elsayed Abdelmaksoud Fathelbab () and Hamzeh Yousef Abu Quba’
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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

JRFM, 2024, vol. 18, issue 1, 1-12

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.

Keywords: board independence; external auditor independence; audit firm size; company size; financial leverage; company age (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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