Effectiveness of Audit Committees: Evidence from Listed Companies in Sri Lanka

Abstract

Audit Committee has become a very effective mechanism for ensuring governance of companies. However, despite its increasing importance, examining its effectiveness within the listed companies in Sri Lanka remains under studied. Therefore, this study aims to conduct an investigation into the audit committee practices and its effectiveness in relation to the listed companies in Sri Lanka, i.e., from the perspective of a developing economy. Further, the study investigates the impact of audit committee attributes on the effectiveness of audit committees. This study followed a quantitative research design in gleaning opinion on the research problem and attaining research objectives of the study. A questionnaire survey was used in gathering data from Board of Directors of 30 companies listed on the Colombo Stock Exchange. Current state of audit committee practices and their effectiveness have been analysed using frequency distributions. Multiple regression analysis and correlation analysis have been used to investigate the relationship between audit committee attributes and effectiveness of audit committee. The results demonstrated that audit committee practices and effectiveness of listed companies in Sri Lanka are perceived to be at a satisfactory level. Regression results also revealed that knowledge and experience of the audit committee members have positive impact on the effectiveness of audit committees. Moreover, correlation analysis suggested that independence and meetings of audit committees have strong positive correlations with the effectiveness of audit committees.