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Corporate Governance and Auditor Independence in Saudi Arabia: Literature Review and Proposed Conceptual Framework

Seraj Hamed Bahrawe, Harashid Haron and Ali Nawari Bin Hasan

International Business Research, 2016, vol. 9, issue 11, 1-15

Abstract: This study aimed to propose a theoretical framework that explains the relationship between internal corporate governance mechanisms namely audit committee and board of directors, and auditor independence. It is a descriptive study that explored the Saudi corporate governance reforms and the Saudi auditing market. In recent years, Saudi Arabia has been pursuing corporate governance reforms, as evidenced by the setting up of the Capital Market Authority (CMA) in 2003 and the publication of the Saudi Corporate Governance Code (SCGC) in 2006. In the Saudi Organization for Certified Public Accountants (SOCPA), the accounting standards committee holds the responsibility of developing and reviewing accounting and auditing standards in the country. According to the agency theory, corporate governance mechanisms and external audit have a key role in improving the process of financial reporting. Basing the primary argument on the above premise, this study attempted to achieve the following objectives; 1) to explore the issue of auditor independence, and 2) to determine the extent of the effect of corporate practices in Saudi Arabia on the external audit independence. This conceptual work’s outcomes revealed that the regulatory authorities and the CMA have to expend more efforts to improve the awareness and appreciation level of effective corporate governance practices among major internal mechanisms (audit committee and board of directors) and external mechanisms (external auditors) of corporate governance in Saudi Arabia.

Keywords: corporate governance; auditor independence; Saudi Arabia (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:11:p:1-15