Does Audit Committee Monitoring Matter in the Government Sector? Evidence from Municipal Internal Control Quality

2014 ◽  
Vol 3 (1) ◽  
pp. 58-80 ◽  
Author(s):  
Kevin T. Rich ◽  
Jean X. Zhang
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Audit Committees ◽  
Control Problems ◽  
Control Quality ◽  
Self Selection ◽  
Government Sector ◽  
The Government ◽  
Financial Oversight

ABSTRACT We investigate whether the presence of municipal audit committees is associated with internal control quality in the municipal setting. The evidence shows that only 20 percent of municipalities in our sample voluntarily maintained an audit committee during the sample period of 2001 through 2004. Our results highlight that municipalities with audit committees are associated with fewer internal control problems, which in turn suggests these cities should be less likely to experience future significant financial reporting failures. These results persist in specifications that use econometric procedures to address concerns about self-selection. Overall, our findings suggest that audit committee presence plays an important role in municipal financial oversight.

scholarly journals Evaluation of the audit committees of government ministries in Namibia: Their compositions, functions and regulations

2015 ◽  
Vol 4 (4) ◽  
pp. 147-159
Author(s):  
Angela Winnie Kandandu ◽  
Edwin Beukes ◽  
Olumide Henrie Benedict
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Best Practice ◽  
Secondary Data ◽  
Audit Committees ◽  
Primary Data ◽  
The Public ◽  
The Government ◽  
Code Of Corporate Governance ◽  
Voice Recorder

The aim of the underlying study to this paper is to evaluate the audit committees in the government ministries in Namibia; by assessing their composition, the function and regulations that govern committees. The study used a qualitative approach of inquiry. A purposive sampling method was used as the researcher selected ministries with audit committees. Thematic and content analysis was used in this study. Both primary and secondary and data were used. On primary data, interviews were conducted and recorded with a voice recorder. Secondary data was during the review of existing literature on the subject. The study found that from the 4 government ministries with audit committees, only one ministry consisted of independent members as well as an independent chairperson, while 3 ministries are chaired by members within their organisations. There was clear evidence of lack of accounting / financial /auditing competence among the committee members. This trend is contrary to the best practice which requires that the chairperson of the audit committees be independent of the ministry as well as the members of the audit committee. The finding indicates possibility of lack of capacity to carry out the functions of audit committees; weak internal control systems; chances of conflict of interest and complacency due to the lack of independence. There is avenue for further research as more ministries in Namibia are now establishing their audit committees, especially as the Namibian Code of Corporate Governance (the NamCode) gains more popularity among the public sector.

scholarly journals The Audit Committee’s Role Regarding the Provisions of The Foreign Corrupt Practices Act

1970 ◽  
Vol 12 (1) ◽  
pp. 23-35
Author(s):  
Alan Reinstein ◽  
Albert Spalding Jr.
Keyword(s):  
New York ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Stock Exchange ◽  
Codes Of Conduct ◽  
Audit Committees ◽  
Foreign Corrupt Practices Act ◽  
Corporate Codes Of Conduct ◽  
Foreign Commerce

The Foreign Corrupt Practices Act (FCPA) of 1977, as amended in 1988, prohibits individuals and corporations from using bribes and kickbacks to enhance foreign commerce. Imposing stiff penalties for noncompliance, the FCPA includes internal control and accounting and recordkeeping provisions. Several studies show that corporate codes of conduct and other formal ethical policies help assure compliance with ethical policies, including the provision of the FCPA. Congress, the Securities and Exchange Commission (SEC), the courts, the American Institute of Certified Public Accountants (A/CPA), and many other financial statement users and preparers have endorsed the audit committee concept as a means to oversee the audit function and otherwise strengthen the financial reporting process. As such, audit committees should ascertain the effectiveness of the entity's internal control structure and compliance with the provisions of the FCPA. After highlighting the provisions of the FCPA, this study examines the extent of the audit committees' involvement in corporate compliance with the FCPA-focusing on corporate codes of conduct-based on a study of 152 audit committees whose securities are traded on the New York Stock Exchange (NYSE). Recommendations for strengthening the committees' and companies' roles in this area are also presented.

The Implications of the Audit Committee in the Financial Reporting of the Entities Listed on the Bucharest Stock Exchange

2021 ◽  
Vol 19 (161) ◽  
pp. 156-171
Author(s):  
Alin-Constantin DUMITRESCU ◽  
◽  
Ovidiu-Constantin BUNGET ◽  
Valentin BURCA ◽  
Oana BOGDAN ◽  
...  
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Econometric Model ◽  
Stock Exchange ◽  
Audit Committees ◽  
Decision Making Process ◽  
Policies And Procedures ◽  
Over Time

Over time social and economic events have reflected that the role of supervisory committees and especially of audit committees within entities is essential for ensuring sustainable development, increasing transparency and confidence. The purpose of the paper is to study the role of the audit committee in the financial reporting process of the companies listed on the Bucharest Stock Exchange in the period 2015-2019. The proposed econometric model shows that the management of the entity is oriented towards reducing deficiencies and non-compliances with internal policies and procedures, giving internal control a central role in the decision-making process.

Audit Committee Quality and Internal Control: An Empirical Analysis

2005 ◽  
Vol 80 (2) ◽  
pp. 649-675 ◽  
Author(s):  
Jayanthi Krishnan
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Control Sample ◽  
Three Dimensions ◽  
Audit Committees ◽  
Control Problems ◽  
Time Period ◽  
Material Weaknesses ◽  
Recent Policy

I examine the association between audit committee quality and the quality of corporate internal control. While information on the quality of internal control is not generally available, companies changing auditors are required to disclose any internal control problems that were pointed out by their predecessor auditors. The empirical results are based on a comparison of companies disclosing such internal control problems with a control sample of companies changing auditors but not disclosing internal control problems. Audit committee quality is measured in three dimensions: its size, its independence, and its expertise. The internal control problems are observed at two levels of increasing seriousness: reportable conditions and material weaknesses. The sample time period precedes the effective dates of recent policy changes regarding audit committees. The results indicate that independent audit committees and audit committees with financial expertise are significantly less likely to be associated with the incidence of internal control problems. This is true for both levels of internal control problems. The results are consistent with recent policy emphasis on audit committee independence and expertise.

The Influence of Audit Committee Expertise on Firms' Internal Controls: Evidence from Mergers and Acquisitions

2020 ◽  
Vol 34 (3) ◽  
pp. 193-211
Author(s):  
Mikhail Sterin
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Committees ◽  
First Year ◽  
Opt Out ◽  
Indirect Path ◽  
Control Decision

SYNOPSIS This study examines how audit committee expertise influences firms' key internal control scoping decisions. Using a unique merger and acquisition (M&A) setting where the internal control audit is voluntary, I study whether audit committee expertise is associated with the deferral of internal control testing for acquired firms. I also examine whether this internal control decision provides a channel through which audit committee expertise leads to positive financial reporting outcomes. I find that audit committees with greater specialized expertise (industry and legal) are less likely to opt-out of first-year target internal control over financial reporting (ICFR) integration. In my second analysis, I find that target ICFR integration provides an indirect path through which industry and legal expertise reduce the likelihood of misstatement. This study contributes to the audit committee and internal controls literature by providing evidence on audit committee influence over firms' internal control decisions and related financial reporting outcomes. JEL Classifications: M41; M42; M48. Data Availability: The data are publicly available from the sources identified in the paper.

scholarly journals An analysis of audit committee effectiveness at the largest listed companies in South Africa from a CFO and audit committee perspective

2009 ◽  
Vol 9 (1) ◽  
Author(s):  
Ben Marx
Keyword(s):  
South Africa ◽  
Financial Reporting ◽  
Internal Control ◽  
Financial Literacy ◽  
Audit Committee ◽  
Listed Companies ◽  
Audit Committees ◽  
Chief Financial Officers ◽  
Subject Field ◽  
Effective Functioning

Purpose: The purpose of the study is to investigate and analyse the effective functioning of audit committees at the largest listed companies in South Africa.Problem investigated: The modern audit committee is often seen as the panacea of the corporate world and as such is looked upon to cure all the financial reporting and control-related problems of entities. Audit committees are, however, not always as effective as they are held to be, as is evidenced by the many well-known corporate scandals and business failures that occurred where audit committees existed and fraudulent financial reporting, audit failures, internal control breakdowns and other irregularities prevailed. The modern audit committee will be of value only if it is properly constituted, is functioning effectively and if its role is clearly understood by all the parties concerned. The research problem investigated stems precisely from this issue, and the paper therefore aims to analyse the effective functioning of the audit committees at the largest listed companies in South Africa. Methodology: The study empirically tested the audit committee practices at the largest listed companies in South Africa. This was done through questionnaires addressed to the CFOs and audit committee chairs. Findings: The study found that audit committees at the largest listed companies in South Africa are well established, properly constituted, have the authority and resources to effectively discharge their responsibilities and consist of members who act independently and who have the right mix of appropriate experience, financial literacy and financial expertise amongst their members. The audit committee's role was found to be generally well understood and supported by the board and the Chief Financial Officers. It was further found that the audit committees are effective in discharging their oversight responsibilities on the board's behalf, with the only real exception being their effectiveness regarding IT-related aspects. Value of research: The study provides valuable information on audit committee practices and the effectiveness of audit committees at the largest listed companies in South Africa. These findings can therefore serve as guidelines for best practice standards for audit committees at other companies and institutions. Conclusion: Audit committees at the largest listed companies in South Africa were found to be well established and according to the views of the CFOs and audit committee chairs to be functioning effectively. Further research regarding the subject field of audit committees should focus on the status and effective functioning thereof at smaller companies, unlisted entities, higher education institutions and public sector entities.

scholarly journals Using triangulation to view internal audit’s governance functioning

2016 ◽  
Vol 13 (4) ◽  
pp. 287-296
Author(s):  
Christo Ackermann
Keyword(s):  
South Africa ◽  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Audit Committees ◽  
Wide Audience ◽  
External Auditors ◽  
Reporting Practices

Internal audit departments of organisations are regarded as an integral component of the combined assurance model alongside the audit committee, management and the external auditors. The primary users of the work of internal audit are the audit committee, senior management, other levels of management and to some extent, the external auditors. This wide audience served by internal audit reinforces the importance of IAFs’ work, which deals with important aspects facing the entity. Internal audit is therefore able to reduce the lack of information availability for the audit committee on matters concerning risk management, internal control and governance. However, a study conducted on audit committee effectiveness, it was found that 40% of audit committees in national government departments in South Africa are not fully effective and are failing to contribute towards improving internal control, risk management, governance and financial reporting practices. Audit committees’ effectiveness in contributing to risk management, internal control and governance was measured at 63%, 76% and 62% respectively, in a comprehensive study on audit committees in the South African public sector. This indicates that their oversight in these areas, especially risk management and governance, is not yet effective. These findings are concerning given that audit committees have a legal mandate to assist government departments in these areas. Internal audit functions are key in assisting audit committees in their governance oversight responsibility. The present study reports on the extent to which internal audit in the eight metropolitan municipalities in South Africa assists audit committees in their governance oversight responsibility, focusing on the scope of work of internal audit with reference to its governance mandate. A data transformation triangulation design was followed to describe internal audit’s functioning

The impact of internal audit function characteristics on internal control quality

2018 ◽  
Vol 33 (5) ◽  
pp. 450-469 ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila Taktak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Quality ◽  
Internal Audit ◽  
Audit Committees ◽  
Content Type ◽  
Internal Auditors ◽  
Control Quality ◽  
Internal Audit Function ◽  
The Impact

Purpose This paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality. Design/methodology/approach Using data gathered from 59 chief audit executives from Tunisian listed companies, this paper uses a regression model to examine research hypothesis related to the association between IAF characteristics and internal control quality. Findings The findings of the current study reveal that internal control quality is significantly and positively associated with IAF competence, internal audit quality control assurance level, follow-up process and audit committee’s involvement in reviewing the internal audit program and results. Practical implications The findings have significant implications for IAF wishing to enhance their effectiveness, by recognizing the impact of the IAF’s characteristics on internal control quality. The findings of this study also have significant implications for regulatory bodies who are concerned with the internal control quality, managers and audit committees who determine IAF investment, oversight IAF activities and assess internal auditors’ performance. Originality/value This study helps fill a gap in the extant literature where existing empirical evidence of how the IAF characteristics influences the quality of the financial reporting process in emerging markets is scant.

The Audit Committee: Management Watchdog or Personal Friend of the CEO?

2013 ◽  
Vol 89 (1) ◽  
pp. 113-145 ◽  
Author(s):  
Liesbeth Bruynseels ◽  
Eddy Cardinaels
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Social Ties ◽  
Data Availability ◽  
Audit Committees ◽  
Sarbanes Oxley ◽  
Negative Effect

ABSTRACT To ensure that audit committees provide sufficient oversight over the auditing process and quality of financial reporting, legislators have imposed stricter requirements on the independence of audit committee members. Although many audit committees appear to be “fully” independent, anecdotal evidence suggests that CEOs often appoint directors from their social networks. Based on a 2004 to 2008 sample of U.S.-listed companies after the Sarbanes-Oxley Act, we find that these social ties have a negative effect on variables that proxy for oversight quality. In particular, we find that firms whose audit committees have “friendship” ties to the CEO purchase fewer audit services and engage more in earnings management. Auditors are also less likely to issue going-concern opinions or to report internal control weaknesses when friendship ties are present. On the other hand, social ties formed through “advice networks” do not seem to hamper the quality of audit committee oversight. Data Availability: All data are publicly available from sources identified in the text.

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