Risk management committee and audit pricing: evidence in Malaysia

The aim of this study is to examine the relationship between audit fees and the formation of risk management committee (RMC). Based on the agency theory, it states that agency problem occur due to information asymmetry between the agent and principal. Thus, the formation of RMC may act as an agent to principal in assessing and disclosing more information regarding the risks that occur in the company. Hence, this will increase the transparency of the company as well as reduce agency problems thus, leading towards higher quality of financial reporting. This study predicts that by forming separate RMC and having members of RMC whom are more independent, expert and female are more likely to demand for higher audit engagement thus, lead towards higher audit fees. Analyses were conducted by using 208 data listed companies in the Bursa Malaysia in 2014. Ordinary Least Square (OLS) regression method was employed to estimate the relationship between RMC and audit fees. The results show that RMC members with independent non-executive and with financial expertise are significantly, positively associated with audit fees since they demand higher level of assurance in auditing. Meanwhile, separate RMC and female members show that they are positively associated with audit fees but are not significant. Therefore, the results provide initial evidence on the relationship between audit fees and RMC in the Malaysian business environment