Governance characteristics and role effectiveness of audit committees

Akeel M. Lary and Dennis W. Taylor

Managerial Auditing Journal, 2012, vol. 27, issue 4, 336-354

Abstract: Purpose - This paper examines the association between audit committee (AC) governance characteristics and their role effectiveness. Its objective is to contribute a more comprehensive model and new evidence from Australia that complements and extends recent studies from different country settings on characteristics, roles and effectiveness of ACs. Design/methodology/approach - The sampling frame is Australian listed companies, over the years 2004 to 2009, consisting of 180 observations. The study applies multiple regressions to validate the hypotheses and models. Findings - Results reveal that stronger AC independence and competence, but not diligence, is significantly related to a lower incidence and severity of financial restatements (i.e. to a higher integrity of financial statements). However, greater AC diligence, but not independence or competence, is significantly related to lower non‐audit fee ratio (i.e. to higher external auditor independence). Practical implications - The paper highlights salient links between an AC's governance characteristics and its effectiveness in fulfilling certain governance roles. Also it expands current literature by presenting a comprehensive empirical model along with statistical measures for AC governance characteristics. Originality/value - Previous studies have not drawn AC governance characteristics together in a comprehensive model or provided evidence beyond the North American and European setting. A further original feature is the measurement of AC competence in terms of collective members' combined financial sophistication and industry knowledge.

Keywords: Australia; Audit committees; Corporate governance; Audit committee effectiveness; Audit committee characteristics; Financial restatements; Auditor independence; Non‐audit fees (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:02686901211217969

DOI: 10.1108/02686901211217969

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