Abstract

This study investigates whether the communication between external auditors and audit committees aligns with the intent of regulations that have strengthened external disclosures. Previous research primarily focused on how communication with governance bodies impacts audit quality, consistently showing results in line with expectations. Unlike these prior studies, the current research examines whether there is increased communication concerning issues when a company experiences financial fraud. The analysis, focusing on companies listed on the stock market from 2018 to 2021, found a significant positive correlation between the accounting fraud and both the frequency of communication and the proportion of face－to－face communication. Yearly analysis revealed that the relationship between financial fraud and total communication frequency was not significant in 2018, the initial year of the enhanced communication regime, but became significant from 2019 onwards. The relationship between financial fraud and the proportion of face－to－face communications varied annually, dependent on the sample selection. This research is significant as it empirically demonstrates the appropriateness of audit execution at the stage of communication with governance bodies. Moreover, it extends previous studies that showed a higher audit quality with increased communication with governance bodies, providing evidence for the possible effects of this communication.

Keywords

• audit committee－auditor communication
• embezzlement and breach of trust
• violations of accounting standards

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