Audit Committee Process in the Emerging Market of Thailand

Abstract

This thesis examines the effects of behavioural traits and power on the governance role of audit committees (ACs).A conceptual view implicit in most extant studies is that the AC process is similar across countries, and as such research tends to focus on the existence of, and effects associated with, structural features as stipulated in governance codes based on agency theory.In contrast, this thesis is premised on the view that, while the adoption of ACs is influenced inter alia by international convergence, local country factors are also potentially a major influence affecting the role and functioning of ACs.Apart from the country factors, the causes for variations in AC's impacts on the external audit have not been subject to much research.In response to the calls for additional theoretical work on AC operations and more studies on the AC process, this thesis introduces the concepts of behavioural traits and power to the study of ACs.Semi-structured interviews of the ACs and the participants in the AC process in Thailand were conducted during 2011 and 2012.The interviewees include 11 AC members (three being foreigners in Thai ACs), 12 external auditors and 17 other participants.The research explores how "behavioural traits"-the behaviour of interviewees as conditioned by the cultural context-affect AC governance role.Power is analysed in terms of contexts and structures, sources of power, will and skill, and content of power, a model proposed by Pettigrew and McNulty (1998; 1995).This thesis finds that while professional traits, such as AC independence, expertise, and diligence, still play a role in conditioning the AC process and related outcomes, behavioural traits and the will and skill to exercise power by the ACs and the AC participants are fundamental to the AC process.Krengjai, one of the most prominent Thai behavioural traits, has both positive and negative effects on the AC governance process, depending on the level of krengjai of the participants.Krengjai may lead to positive governance outcomes when the other participants in the AC process are krengjai of the ACs.On the contrary, governance can be compromised when the ACs are krengjai of the other participants in the AC process, whether of another AC member, management or external auditor.The participation of foreign AC members in Thai ACs in this research results in strong and diverse ACs because of their lower krengjai trait.The findings also reveal that, although there are wide variations of AC's influence on the governance process, especially in the areas of auditor selection and the resolution of disputes between management and external auditors, a majority of ACs in this research only have ceremonial effects.On auditor selection, the main causes of AC's ceremonial effect are the perception of similar quality among the Big-4 audit firms, favouring of management preferences regarding auditor choice by ACs and time constraints of AC members, all of which result in reduced will to exercise power by ACs.However, ACs with strong will and skill to exercise power can also effect auditor changes.The AC's effects on dispute resolution vary, depending very much on the AC's will to deploy power.Factors causing ACs to have weak will include the lack of AC independence and the krengjai behavioural trait of AC members.Inadequate power source (knowledge), skill and context also contribute to ACs only having ceremonial influence.The thesis reveals that for ACs to have significant influence, they need a combination of all power components appropriate to the circumstances.

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