Audit Committee Compliance with Kuala Lumpur Stock Exchange Listing Requirements

Abstract

This research investigated the extent of companies’ compliance with the Kuala Lumpur Stock Exchange (KLSE) listing requirements in relation to audit committees. Additionally, the research set out to identify any significant differences in compliance between PN4 companies, that is companies that fall under Practice Notes 4 of KLSE's revamped listing requirements and are required to regularize their financial condition in a timely manner, and non-PN4 companies. One hundred and twenty companies were selected from 852 public listed companies on the KLSE. Year 2002 annual reports were the source of data for this study. The study investigated the ten listing criteria related to the five core KLSE disclosures to be complied with, which are with respect to: (1) audit committee composition, (2) written terms of reference, (3) audit committee meetings and attendance, (4) audit committee activities and (5) internal audit activities. Only 45% of the sample population complied with all ten listing criteria. This comprised 40.3% for companies listed on the main board, 57.1% for those listed on the second board and 38.5% for PN4 companies. The percentage of independent directors present at meetings ranged from 0% to 100%, with an average attendance of 78%. This indicated a deviation in practice from the KLSE listing requirement that requires 100% of all the meetings to have a majority of independent directors present. No significant difference between PN4 companies and non-PN4 companies with regard to audit committee compliance was found.