Article2010

Audit committee effectiveness: a public sector case study

57 citations0/0 files storedManagerial Auditing Journal

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Auditing, Earnings Management, Governance Public Policy and Administration Research Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the conditions and processes affecting the operation of an audit committee within the context of a New Zealand district health board (DHB). Design/methodology/approach The methodology used in this paper was exploratory and qualitative, including the analysis of secondary data and semi‐structured interviews. Findings Using the New Zealand Auditor‐General's best practice guidelines for a public sector audit committee as a benchmark, the paper finds that the DHB rates moderately well in terms of “effectiveness potential”. However, factors are identified concerning the audit committee members' independence, competence, tenure, and remuneration, which impinge upon the overall effectiveness of the audit committee. Despite apparent shortcomings in these areas, the informal networks between audit committee members and management serve to maximise the “realisation” of what potential effectiveness exists. As a result, the audit committee is perceived by its stakeholders (management, auditors, and committee members) as being a valuable tool to assist the DHB board in achieving proper governance. Practical implications There are no specific regulatory or legislative requirements for establishing audit committees in the New Zealand public sector. The findings from this paper may be useful to public sector entities that are considering establishing an audit committee and to entities, including the one in this paper, that wish to improve the effectiveness of their existing audit committees. Originality/value Most studies of audit committees to date have focuses on corporate sector entities; this is the first qualitative paper of an audit committee of a public sector entity in New Zealand.

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References

2004Audit Committee Characteristics and Restatements 2006Audit Committee Quality, Auditor Independence, and Internal Control Weaknesses 2002Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature 1994The use of audit committees for monitoring 2002Economic Determinants of Audit Committee Independence 1989Voluntary formation of corporate audit committees among NASDAQ firms 2007Audit committee effectiveness: informal processes and behavioural effects 1990The incentives for voluntary audit committee formation

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