Attributes of an Effective Audit Committee: Evidence from an Emerging Capital Market

18 Pages Posted: 14 Aug 2006

See all articles by Zulkarnain Muhamad Sori

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia

Annuar Nassir

University Putra Malaysia

Date Written: August 2006

Abstract

Audit committee has been in existence for many decades. The establishment of audit committee aimed to mitigate corporate fraudulent or creative accounting practices through internal control initiated by independent and effectively functioning non-executive members of audit committee. An effectively functioning audit committee helps to improve corporate governance practice of firms. This study identifies the attributes of an effective audit committee from audit committee chairman's perspective. The study utilized questionnaire survey approach, where a total of 200 questionnaires were distributed to chairman of audit committee of companies that listed on the Main and Second Board of the Kuala Lumpur Stock Exchange. Seventy-two useable questionnaires were returned (or 36% response rate). Using factor analysis; the respondents rated highly the effectiveness attributes, which explained 72% of the variance in all of the variables. Three factors were extracted: overall features (54% variance), model to others (10% variance) and review and analysis of standards (8% variance). In general, the respondents believed that an effective audit committee should have the following attributes: sophisticated accounting knowledge, review of financial statements, traditional role in accounting and auditing to ensure auditor independence and good management, and internal control.

Keywords: Audit Committee, Corporate Governance, Effectiveness, Attributes and Internal Control

JEL Classification: M49, G34, M47

Suggested Citation

Muhamad Sori, Zulkarnain and Abdul Hamid, Mohamad Ali and Nassir, Annuar, Attributes of an Effective Audit Committee: Evidence from an Emerging Capital Market (August 2006). Available at SSRN: https://ssrn.com/abstract=924101 or http://dx.doi.org/10.2139/ssrn.924101

Zulkarnain Muhamad Sori (Contact Author)

INCEIF, The Global University of Islamic Finance ( email )

Lorong Universiti A
Kuala Lumpur, Kuala Lumpur 59100
Malaysia
+60376514173 (Phone)
8 (Fax)

HOME PAGE: http://www.inceif.org/

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

Annuar Nassir

University Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

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