Audit Committee Charter Scope: Determinants and Effects on Audit Committee Effort

Abstract

In general, it is either required or recommended that listed firms adopt, periodically update and publicly disclose a written charter for their audit committee. The ostensible purpose of audit committee charters is to inform the investing public about the role and responsibilities of the audit committee of a given firm and to provide authority, direction and discipline for audit committee members. However, evidence has indicated that the audit committee charters of different firms are boilerplate copies of each other and that firms deliberately decouple actual committee practices from the content of their charters, perversely in those institutional settings characterized by a stringent disclosure regime. This paper, on the other hand, provides evidence for a significant relation between the scope of responsibilities set forth in audit committee charters of large firms and measures of actual committee activity in institutional settings characterized by stringent disclosure regimes, and an absence thereof in voluntary disclosure settings.

A review of accounting research in Australasia

“…() examined the effects of individual ethical orientation, independence threat and moral intensity on auditors’ ethical decision‐making process. Audit‐related internal controls include studies on audit committees (Böhm et al ., ), and internal audit (Coetzee and Erasmus, ). Studies on audit quality, for example, focused on the influence of regulation on audit quality (Knechel, ), and studies on audit fees include assessment of the relationships between business group affiliation, board quality and audit pricing (Johl et al ., ).…”

Does an effective audit committee influence firm performance? –The moderation role of knowledge intensity

“…Further, the result draws support from the agency theory as the AC charter, by clearly defining AC members’ individual and collective duties and responsibilities, establishes a system of checks and balances through oversight of financial reporting to reduce the potential for management opportunism and misconduct that, in turn, reduces information asymmetry and agency cost and ultimately improves FP. According to Böhm et al (2016) and Ika and Ghazali (2012), the AC charter provides authority to the AC members, increases investors’ confidence and improves FP. Holding multiple directorships also increases ACE and is supported by Sarkar and Sarkar (2009).…”

Audit committee expertise in large European firms

“…The initial sample was made up of all 310 listed firms included in the most representative stock exchange indexes in France, Germany, Italy, Spain, Belgium, The Netherlands, Portugal and the UK in December 2014 [5]. A similar selection procedure was followed by Böhm et al (2016) and covers the vast majority of financially significant European companies. After dropping cross-listed firms in several markets, the sample is short-listed to 296 firms [6].…”