Impact of Corporate Governance on Audit Fees and Audit Quality: A Study in the Insurance Industry of Bangladesh

Corporate Governance, audit fee and Audit quality are very important components for any organization to ensure internal control and financial reporting procedures. This study is primarily done to measure the impact of corporate governance on audit fee and audit quality in the insurance sector of Bangladesh considering the growing importance of insurance industry for economic development. Though more than 63 insurance companies are working now in Bangladesh covering life and general insurance, for the analysis of the scenario, information was collected about 40 insurance companies out of 47 listed insurance companies in Dhaka Stock Exchange. Among them 8 are life insurance company and other 32 are general insurance company of Bangladesh. All the annual report of Insurance Company has been selected for 2017. It is evident that the audit fee of insurance companies of Bangladesh is too much lower than that is proposed in minimum audit fee schedule by the Institute of Chartered Accountants of Bangladesh (ICAB). Therefore, the contemporary study targets to assess the relationship between corporate governance, audit fee and audit quality in the insurance sector of Bangladesh. For this motive panel regression is used to analyze the relationship, and the results showed that Corporate Governance (CG), Farm Size(FS) and leverage have a positive relationship with audit fee and CG, FS and audit fee have a positive relationship with audit quality. 4 THE COST AND MANAGEMENT ISSN 1817-5090, VOLUME-47, NUMBER-02, MARCH-APRIL 2019 Introduction: Insurance sector is now one of the largest contributory sectors in the total economy of Bangladesh. This sector generally signals the prospect and probability of other sectors too, as insurance sector assists other sectors to be safe from disasters. Insurance industry particularly has special social interest because of its various functions in society. The main aim of the modern insurance industry is to minimize the risk by association of the insured into the institutionalized risk communities, i.e., insurance companies and to ensure direct economic protection against negative effects of risk actuation through indemnity (Njegomir and Tepavac, 2014). In addition to the primary function, insurance companies are also involved in exchange and trade, credit improvement, mobilization of funds, effective capital allocation and other activities that contribute directly to the society. So the successful management of this industry is very crucial for all stakeholders and for entire community. And that is only possible through good corporate governance which confirm a better quality audit and also have an impact on the determination of appropriate audit fees. So Corporate Governance, audit fee and Audit quality are very important components for any organization to ensure internal control and financial reporting procedures. Governance in corporation and its effectiveness can lead to organizational success. Reputed audit firms are consistently trying to improve the corporate governance mechanism (Abdullah,2008). On the other hand, failure or ineffectiveness of corporate governance can lead to financial distress. Corporate governance practices ensure that audit quality is properly maintained. Audit quality ensures the accountability of the firm. Empirical evidence also shows that poor corporate governance decreases the audit quality of financial reporting (Cercello et al., 2002). The purpose of this research is to observe the relationship between corporate governance, audit fee and audit quality; and measure the impacts of corporate governance on audit fee and audit quality.