Audit Committee Characteristics and Auditor Opinions: Evidence from Pakistan’s Listed Firms

Abstract

In this paper, we examine audit committee independence, the financial qualifications of its members, the frequency of its meetings, its size, the type of auditors, whether big-four or non-big-four, and the impact of these factors on the quality of financial reporting. To analyse how these committee characteristics affect the auditor’s opinion, we select a sample of 103 companies listed on the Pakistan Stock Exchange for the financial year 2024 and apply logistic regression analysis. The results show that companies with more independent audit committees and those audited by Big Four firms are less likely to receive a modified audit opinion. This finding is consistent with prevailing perceptions and highlights the role of independence and external audit quality in safeguarding the integrity of financial reporting in the context of Pakistan as a developing economy. However, the results are unexpected when examining the impact of meeting frequency on reporting quality. We find a positive association between the number of audit committee meetings and the likelihood of receiving a modified opinion, which contrasts with previous studies suggesting that meeting frequency is linked to improved reporting quality. The quality of financial reporting does not appear to be influenced by the size of the committee or the financial expertise of its members. This study contributes to the literature by offering insights into how governance mechanisms function in developing economies such as Pakistan. The results suggest the need for higher proportions and substantive independence, training of members and chairs for substantive oversight, and evaluation of members' performance.

Keywords: Audit Committee Independence, Auditor Opinion, Corporate Governance, Pakistan Stock Exchange