A Study of the Determinants of Australian Audit Committee Effectiveness

Despite continued promotion of audit committees by professional and regulatory bodies as a desirable corporate governance mechanism, limited research has addressed the effectiveness of audit committees or the factors associated with audit committee effectiveness. The purpose of this study is to develop a composite measure of audit committee effectiveness and to investigate the association between five audit committee characteristics and effectiveness. Following the method adopted by Spangler & Braiotta [1990] and Kalbers & Fogarty [1993], effectiveness was measured using a composite of survey responses from the audit committee chairperson, a non-executive director and the internal audit manager of a sample of Australian publicly listed corporations. The independence of audit committee members, the provision of training to audit committee members and the knowledge and experience of audit committee members were found to be related to audit committee effectiveness. Other audit committee characteristics were not significantly associated with effectiveness, suggesting a need for further empirical investigation.