Article Sidebar

Download
PDF
Statistic
Read Counter : 540 Download : 2593

Main Article Content

Abstract

External audit opinions (EAO) and Audit committees (AC) have been studied in different contexts, yet the link between them and the management of financial resources, especially in government entities in Tanzania, has empirically not been captured. This paper examined the influence of EAO and AC on managing financial resources taking Tanzania government entities as a reference. It uses resources dependency theory to explain the main topic. Data were collected on 230 government entities from Controller and Auditor General (CAG) reports and audited financial statements for 2014/15 to 2019/20. Descriptive statistics and the Fixed effect technique were used to analyze data. The results show that unqualified audit opinion occurred most among public entities. Specifically, the qualified audit opinion occurred most in LGAs. Also, a significant frequency of AC weaknesses appeared in LGAs and Public BICA.Moreover, the estimation results show that audit report positively and significantly influences financial resource management (FRM), whereas AC weakness has a negative relationship with FRM. Therefore, the President’s office and the Parliament should emphasize the management of resources strategies in public entities, especially LGAs. This paper will add knowledge on EAO and AC as tools for financial resources management in government entities.

Keywords

External audit opinions audit committee financial resource management

Article Details

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite
Mwombeki, F. (2023). Effect of External Audit Opinions and Audit Committees on Financial Resource Management in Public Sector Entities. Ilomata International Journal of Tax and Accounting, 4(1), 38-54. https://doi.org/10.52728/ijtc.v4i1.647

References

  1. Abdallah M. M (2013). Contribution of audit committees towards the Local government authority’s performance in resources management: A Case of Bariadi District Council. (Master dissertation). Mzumbe University, Tanzania
  2. Affandi, A., AM, E. N., Udobong, A., & Sarwani, S. (2020). Implementation of human resource management in the adaptation period for new habits. International Journal of Educational Administration, Management, and Leadership, 1(1), 19-26.
  3. Alcaide Muñoz, L., Rodríguez Bolívar, M. P., & López Hernández, A. M. (2017). Transparency in governments: a meta-analytic review of incentives for digital versus hard-copy public financial disclosures. The American Review of Public Administration, 47(5), 550-573.
  4. Amini, S., Delgado, M. S., Henderson, D. J., & Parmeter, C. F. (2012). Fixed vs random: The Hausman test four decades later. Essays in honour of Jerry Hausman (Advances in Econometrics, Vol. 29), Emerald Group Publishing Limited. Bingley,479-513. https://doi.org/10.1108/S0731-9053(2012)0000029021
  5. Baker, R.L., Bealing, W.E., Nelson, D.A. & Blair Staley, A. (2006), “An institutional perspective of the Sarbanes‐Oxley Act”, Managerial Auditing Journal, 21(1), 23-33.
  6. Baldacchino, P. J., Bezzina, F. H., Tabone, N., & Vassallo, J. P. (2014). Recent trends in modified audit opinions in Malta. In International OFEL Conference on Governance, Management and Entrepreneurship, 51.
  7. Bordens, K. S., & Abbott, B. B. (2011). Research Design and Methods: A Process Approach (8th Edition ed.). New York, U.S.A.: McGraw-Hill.
  8. Braunstein, S., & Welch, C. (2002). Financial literacy: An overview of the practice, research, and policy. Fed. Res. Bull., 88, 445.
  9. Brignall, S., & Modell, S. (2000). An institutional perspective on performance measurement and management in the ‘new public sector. Management accounting research, 11(3), 281-306.
  10. Bruynseels, L. & Cardinaels, E., (2014). The audit committee: Management watchdog or personal friend of the CEO? The accounting review, 89(1), 113-145.
  11. Budiman, M.A., (2021). The effect of audit opinions, implementation of audit recommendations, and findings of state losses on corruption levels within ministries and institutions in the Republic of Indonesia. Jurnal Tata Kelola Dan Akuntabilitas Keuangan Negara, 7(1), 113-129.
  12. CAG, United Republic of Tanzania. (2018). Public Authorities and other Bodies Annual Report. From www.nao.go.tz
  13. Daft, R.L. (2001). Organization theory and design. Cincinnati, OH: South-Western College Publishing.
  14. Daily, C. M., & Dalton, D. R. (1998). The role of governance in corporate decline: A review and research agenda. In D. Ketchen (Ed.), Advances in applied business strategy, 5, 239-260.
  15. Dalton, D. R., Hitt, M. A., Certo, S. T., & Dalton, C. M. (2007). Agency theory and its mitigation. In A. Brief, and J. Walsh (Eds.), Academy of management annals, 1, 1-64.
  16. Disatnik, D., & Sivan, L. (2016). The multicollinearity illusion in moderated regression analysis. Marketing Letters, 27(2), 403-408.
  17. Dorotinsky, W. & Pradhan, S., (2007). Exploring corruption in public financial management. The many faces of corruption: Tracking vulnerabilities at the sector level, 6, 103.
  18. Etikan, I., & Bala, K. (2017). Sampling and sampling methods. Biometrics and Biostatistics International Journal, 5(6), 1-49.
  19. Fiegener, M. K., Brown, B. M., Dreux, D. R., & Dennis, W. J. (2000). CEO stakes and board composition in small private firms. Entrepreneurship: Theory and Practice, 24, 5-24.
  20. Giacomino, D. E., & Mielke, D. E. (1993). Cash Flows: Another Approach to Ratio Analysis. Journal of Accountancy, 175(3), 55-58.
  21. Goddard, A., & Malangila, J. (2015). Public sector external auditing in Tanzania: A theory of managing colonizing tendencies. Research in Accounting in Emerging Economies, 15, 179-222. https://doi.org/10.1108/S1479-356320150000015007
  22. Gramling, A. A., Hermanson, D. R., & Hermanson, H. M. (2009). Audit committee material weaknesses in smaller reporting companies. The CPA Journal, 79(12), 24-29
  23. Güleç, Ö. F., & Bektaş, T. (2019). Cash flow ratio analysis: The case of Turkey. Journal of Accounting and Finance, special issue, 247-262. Doi: 10.25095/mufad.606022
  24. Hamid, K. C. A., Othman, S., & Rahim, M. A. (2015). Independence and financial knowledge on audit committee with non-compliance of financial disclosure: A study of listed companies issued with public reprimand in Malaysia. Procedia-Social and Behavioral Sciences, 172, 754-761.
  25. Handoko, A.H., Yanuar S., & Nining W (2020). The effect of financial conditions and audit opinions on local government performance. Advances in economics, business and management research. 169, 91-95
  26. Haonga, F. J. (2020). Assessment of Effectiveness of Audit Committee in the Public Sector in Tanzania: A Case of National Examinations Council of Tanzania (Doctoral dissertation). Mzumbe University, Tanzania
  27. Hasthoro, H. A., Saksono, Y., & Widiyanti, N. (2021). The Effect of Financial Conditions and Audit Opinions on Local Government Performance. In 3rd International Conference of Banking, Accounting, Management and Economics, 91-95
  28. Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica, 46, 1251–1271
  29. Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404–1427. https://doi.org/10.1177/0149206309343469
  30. Hui Liu, Charles P. Cullinan & Junrui Zhang (2020). Modified audit opinions and debt contracting: evidence from China, Asia-Pacific Journal of Accounting and Economics, 27(2), 218-241
  31. Iskandar, Y. (2020). The Effects of ROA, ROE, NPL, and Operating Expenses to Operating Revenues on Stock Return at Commercial Banks in Indonesia. Journal Aplikasi Manajement, 18(4), 704-711.
  32. Istrate, C. (2018). Financial auditing and financial reporting for Romanian state-owned companies–modified opinions and observations. Journal of Accounting and Management Information Systems, 17(4), 513-531.
  33. Kyaruzi, F. J. (2015). The effectiveness of audit committee in Promoting good corporate governance in public organizations: the case of Morogoro Municipal council (Doctoral dissertation). Mzumbe University, Tanzania.
  34. Lee, N., Sameen, H., & Cowling, M., (2015). Access to finance for innovative SMEs since the financial crisis. Research Policy, 44, 370–380.
  35. Lin, Z., Jiang, Y., & Xu, Y. (2011). Do modified audit opinions have economic consequences? Empirical evidence based on financial constraints. China Journal of Accounting Research, 4(3), 135-154
  36. MacGregor, J. (2012). Audit committee equity holdings, the risk of reporting problems, and the achievement of earnings thresholds. Journal of Accounting and Public Policy, 31(5), 471-491.
  37. Maldonado, I., Pinho, C., & Lobo, C. A. (2019). Determinant factors of external audit opinion modification in Portuguese municipalities. In 2019 14th Iberian Conference on Information Systems and Technologies, 1-6
  38. Masud, M., Kaium, A., Nurunnabi, M., & Bae, S. M. (2018). The effects of corporate governance on environmental sustainability reporting: Empirical evidence from South Asian countries. Asian Journal of Sustainability and Social Responsibility, 3(1), 1-26.
  39. Miloane, T. (2021). The role of Supply Chain Management in South African public entities’ influence on taxation expenditure and revenue (Doctoral dissertation). North-West University, South Africa, 1-111
  40. Morin, D. (2008). Auditors’ general’s universe revisited: An exploratory study of the influence they exert on public administration through their value for money audits. Managerial Auditing Journal, 23 (7), 697-720. https://doi.org/10.1108/02686900810890652
  41. Mwenda, B., Ndiege, B.O., & Pastory, D (2021). Impact of listing on the performance of firms listed at Dar es salaam stock exchange, Tanzania. African Journal of Applied Research, 7 (2), 13-29
  42. Mzenzi, S. I., & Gaspar, A. F. (2015). External auditing and accountability in the Tanzanian local government authorities. Managerial Auditing Journal, 30(6-7), 681–702. https://doi.org/10.1108/MAJ-04-2014-1028
  43. Nandi, S., Sarkis, J., Hervani, A., & Helms, M. (2020). Do blockchain and circular economy practices improve post COVID-19 supply chains? A resource-based and resource dependence perspective. Journal of Industrial Management and Data Systems, 121(2), 333-363. https://doi.org/10.1108/IMDS-09-2020-0560
  44. Ngoepe, M., & Ngulube, P. (2013). Contribution of Record-Keeping to Audit Opinions: An Informetrics Analysis of the General Reports on Audit Outcomes of the Auditor-General of South Africa. Esarbica Journal, 32, 52-61
  45. Ntim, C.G., Soobaroyen, T. & Broad, MJ (2017), “Governance structures, voluntary disclosures and public accountability: The case of UK higher education institutions”, Accounting, Auditing and Accountability Journal, 30(1), 65-118
  46. Nwanyanwu, L. A. (2017). Audit quality practices and financial reporting in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 145-155.
  47. Panno, A. (2020), “Performance measurement and management in small companies of the service sector; evidence from a sample of Italian hotels”, Measuring Business Excellence, 24(2), 133-160
  48. Petra, S. & Spieler, A.C. (2020), “Accounting Scandals: Enron, WorldCom, and Global Crossing”, Baker, H.K., Purda-Heeler, L. and Saadi, S. (Ed.) Corporate Fraud Exposed, Emerald Publishing Limited, Bingley, 343-360. https://doi.org/10.1108/978-1-78973-417-120201022
  49. Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Cambridge university press, New York: Harper and Row, 25-54
  50. Przychodzen, J.W., (2015). Relationships between eco-innovation and financial performance - Evidence from publicly traded companies in Poland and Hungary. J. Clean. Production., 90, 253–263. Doi: 10.1016/j.jclepro.2014.11.034
  51. Pugh, D.S., & Hickson, D.J. (1997). Writers on organizations. Thousand Oaks: Sage Publications, Inc.
  52. Sanders, W. M. G., & Carpenter, M. A. (1998). Internationalization and firm governance: The roles of CEO compensation, top team composition, and board structure. Academy of Management Journal, 41: 158-178.
  53. Scarpellini, S., Marín-Vinuesa, L.M., Portillo-Tarragona, P., & Moneva, J.M, (2018). Defining and measuring different dimensions of financial resources for business eco-innovation and the influence of the firms’ capabilities, Journal of Cleaner Production, 1-34. Doi: 10.1016/j.jclepro.2018.08.320
  54. Soobaroyen, T., Broad, M.J., & Ntim, C.G. (2014). ‘The Role and Effectiveness of Audit Committees: The Case of UK Higher Education Institutions, Leadership Foundation for Higher Education, London, England, UK
  55. Swarnapali, RMNC (2014) Firm-Specific Determinants and Financial Performance of Licensed Commercial Banks in Sri Lanka, Proceedings of the 3rd International Conference on Management and Economics, 26-27 February 2014, Faculty of Management and Finance, University of Ruhuna, Sri Lanka Retrieved on 24 July 2014 from http://www.mgt.ruh.ac.lk/pubs/pdf/ICME2014_OP_p247.pdf
  56. Tabachnick, B. G. & Fidell, L. S. (1996). Using Multivariate Statistics, 3rd ed., Harper Collins, New York, NY.
  57. Thomas, K., & Purcell, A. J. (2019). Local government audit committees: A behaviour framework for effective audit committee performance. Australian Accounting Review, 29(2), 418-437.
  58. URT-United Republic of Tanzania. (2020). Annual General Report of the Controller and Auditor General on the Audit of Central Government Entities for the financial year 2018/2019. From www.nao.go.tz
  59. URT-United Republic of Tanzania. (2019). Annual General Report of the Controller and Auditor General on the Audit of Local Government Authorities for the financial year 2017/2018. From www.nao.go.tz
  60. URT-United Republic of Tanzania. (2004). The Public Finance Act. Revised, 2004.
  61. Uygun, M. (2017). Purchasing decisions at private hospitals in the framework of resource dependency theory. Independent Journal of Management and Production, 8(4), 1400-1413.
  62. Wilbanks, R. M., Hermanson, D. R., & Sharma, V. D. (2017). Audit committee oversight of fraud risk: The role of social ties, professional ties, and governance characteristics. Accounting Horizons, 31(3), 21-38.
  63. Yamane, Taro, (1967). Statistics, An Introductory Analysis, 2nd ed., New York: Harper and Row
  64. Zhiwei L., Yihong J., & Yixuan X. (2011). Do modified audit opinions have economic consequences? Empirical evidence based on financial constraints. China Journal of Accounting Research, 4, 135-154
  65. Zhou, H., Owusu-Ansah, S., & Maggina, A. (2018). Board of directors, audit committee, and firm performance: Evidence from Greece. Journal of International Accounting, Auditing and Taxation, 31, 20-36.