The Audit Committee as a Key Corporate Governance Mechanism
INTRODUCTION
There has been considerable interest in recent years in the role of the audit committee as a key corporate governance mechanism. Corporate governance committees and regulators around the world have addressed the need for effective audit committees, with many requiring that listed companies must have a committee (European Union (EU) 8th
Company Law Directive, 2006; Smith Report, 2003;
United States (US) Congress, 2002). Recognising that the existence of a committee does not guarantee that the committee will be effective, attention has moved to the composition and activities of audit committees. Recommendations have focused on the independence and expertise of committee members and the frequency of committee meetings (Smith Report, 2003;
Australian Stock Exchange Corporate Governance
Council (ASX), 2003; National Association of
Corporate Directors (NACD), 1999). However, research suggests that there is considerable divergence in the recommended structure and role of audit committees across different jurisdictions
(Collier & Zaman, 2005).
Following the well-publicised corporate collapses (such as Enron and WorldCom in the
US and HIH Insurance and Harris Scarfe Ltd in Australia), the efficacy of audit committees has been challenged (Turley & Zaman, 2004).
Legislators have responded by expanding the responsibilities of audit committees and placing greater emphasis on the role that they play in enhancing audit independence (US Congress,
2002; Commonwealth of Australia, 2004).
However, research evidence that demonstrates the value of audit committees is sparse, particularly outside North America (Spira, 2003). As Spira
(2003, p. 180) notes, audit committees ‘are assumed, with very little proof, to be an effective governance mechanism’. The objective of this study is to examine the impact of the existence of an audit committee, the frequency of audit committee meetings, and the auditor’s attendance at those meetings,
There has been considerable interest in recent years in the role of the audit committee as a key corporate governance mechanism. Corporate governance committees and regulators around the world have addressed the need for effective audit committees, with many requiring that listed companies must have a committee (European Union (EU) 8th
Company Law Directive, 2006; Smith Report, 2003;
United States (US) Congress, 2002). Recognising that the existence of a committee does not guarantee that the committee will be effective, attention has moved to the composition and activities of audit committees. Recommendations have focused on the independence and expertise of committee members and the frequency of committee meetings (Smith Report, 2003;
Australian Stock Exchange Corporate Governance
Council (ASX), 2003; National Association of
Corporate Directors (NACD), 1999). However, research suggests that there is considerable divergence in the recommended structure and role of audit committees across different jurisdictions
(Collier & Zaman, 2005).
Following the well-publicised corporate collapses (such as Enron and WorldCom in the
US and HIH Insurance and Harris Scarfe Ltd in Australia), the efficacy of audit committees has been challenged (Turley & Zaman, 2004).
Legislators have responded by expanding the responsibilities of audit committees and placing greater emphasis on the role that they play in enhancing audit independence (US Congress,
2002; Commonwealth of Australia, 2004).
However, research evidence that demonstrates the value of audit committees is sparse, particularly outside North America (Spira, 2003). As Spira
(2003, p. 180) notes, audit committees ‘are assumed, with very little proof, to be an effective governance mechanism’. The objective of this study is to examine the impact of the existence of an audit committee, the frequency of audit committee meetings, and the auditor’s attendance at those meetings,