Political connections and the characteristics of the audit committee on the audit quality

Abstract

ABSTRACT The goal of this study is to analyze the influence of political connections and the characteristics of the audit committee on the audit quality, as measured by the fees paid to auditors. Although the international literature explores political and auditing connections, there is a lack of studies that address the role of the audit committee as a governance mechanism in the Brazilian context, especially considering its non-mandatory nature for all companies. There is a lack of research investigating how the composition and functioning of this committee, in environments of political influence, affect financial supervision and risk mitigation. The discussion is relevant due to the little evidence on the impact of political connections on auditors independence and financial transparency in Brazil. Understanding these effects is key to improving governance practices and reducing the use of political connections as assets to obtain government benefits. The findings indicate that larger, independent and active committees strengthen oversight, reduce fraud and increase transparency. The results support companies and policymakers in the search for more robust governance. This study is descriptive and documentary, with an unbalanced data panel of 153 public listed Brazilian companies on B3 S.A. - Brasil, Bolsa, Balcão from 2016 to 2023. The study indicates that political connections in the audit committee reduce the quality of auditing in Brazil, in contrast to part of the international literature. Conversely, larger, more independent committees with frequent meetings improve the quality of audits and strengthen governance. Female participation and financial expertise of members are related to lower audit fees. The results highlight the importance of an adequate and efficient composition of the auditing committees.