The Audit Committee Anomaly in South African Local Governance

Abstract

Stakeholders of organisations have to rely on the credibility and effectiveness of governance by management and oversight structures, such as the audit committee, to protect their interests. Drawing on the agency theory, the role of the audit committee is globally accepted to be one of oversight and monitoring. In contrast, the Municipal Finance Management Act requires South African municipal audit committees to be independent advisory functions, invoking the institutional theory in terms of symbolic display. In this article the research objective is to argue the anomaly in the Municipal Finance Management Act regarding audit committees' role, given that this deviates from the globally accepted norm. This conceptual article follows an interpretive approach, which includes a document analysis, firstly to establish the prevalence of the audit committee advisory expectation and, secondly, to argue from theoretical perspectives, whether the audit committee as an advisory function, has validity. The findings suggest that legislators should consider amending the Municipal Finance Management Act to reflect audit committee best practice or change the name of the municipal audit committee to that of an advisory committee to avoid misleading local communities in terms of what may be perceived as good governance practice. This article thus informs policymakers of an apparent governance anomaly in South African legislation.