The Audit Committee as a Key Corporate Governance Mechanism

1194 Words Sep 30th, 2008 5 Pages
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
…show more content…
The contribution of our study stems from its focus on the supply of audit services and the perceptions of auditors involved with audit committees. As with any experimental design, the ability to manipulate variables is constrained by the number of participants in the study. This problem was enhanced because we required our participants to be partners or managers with audit committee experience and the availability of auditors at this level is restricted. We chose to hold constant audit committee independence and expertise and to manipulate the frequency of audit committee meetings and auditor attendance at meetings.
There are three reasons for this choice. First, recent
Australian evidence indicates a positive association between audit fees and both the existence of an audit committee and the frequency of audit committee meetings (Goodwin-Stewart & Kent,
2006). Hence, further exploration of this finding from a supply-side perspective is warranted.
Second, audit committee meetings have consistently been found to be associated with higher financial reporting quality (Turley &
Zaman, 2004). Financial reporting quality should be an outcome of a high quality audit and hence the impact of audit committee activity on the audit process is worthy of further investigation.
Third, according to DeZoort et al. (2002), diligence is the primary process factor needed to achieve audit committee effectiveness, building on a