Factors associated with the quality of audit committees

Abstract

PurposeThe purpose of this study is to analyse whether several indicators of audit committee quality are associated with a number of supply and demand factors such as board composition, board activity, auditor type and leverage.Design/methodology/approachThe 2001 annual reports of a random sample of 200 Australian listed companies were analysed and data gathered on several audit committee quality indicators, i.e. independence, expertise, size and activity. Regression analysis was performed to determine the level of association between these indicators and several board and other variables.FindingsThe results indicate that, in 2001, many Australian listed companies were already complying with several of the ASX Corporate Governance Council's recommendations relating to audit committees. Furthermore, in a time period absent of audit committee regulation, there was strong support for the influence of the board of directors on the composition and activity of the audit committee.Research limitation/implicationsConsistent with prior research, this study confirms the influence of the board of directors on a number of audit committee quality indicators.Practical implicationsCorporate regulators and companies will find these results useful to understand the factors driving several of the main indicators of audit committee quality.Originality/valueThis study adds to the current limited empirical research on Australian audit committees by analysing several indicators of audit committee quality in a time period not affected by regulation.