Audit Committee, Internal Audit Function and Audit Quality: Emerging Market Perspective

This study investigates the joint effect of the board of directors’ audit committee and the internal audit function, namely revision commission, on audit quality of Russian public companies. We document that both the audit committee’s presence and the extent (size) of the revision commission have a positive effect on audit quality, as proxied by audit fees. However, they are substitutes for each other. We further find substitutive effects on audit quality between Big 4 firm audits and both audit committees and internal audit functions. State ownership in a company plays an interchangeable role with the presence of an audit committee, whereas cross-listing on international exchanges appears to be substitutive for the extent of the internal audit function. Our results are informative to policymakers and companies as they consider the adoption of international governance standards within the context of a country’s history and economic development.