The Audit Committee Anomaly in South African Local Governance

Politeia ◽  
2019 ◽  
Vol 38 (2) ◽  
Author(s):  
Lourens Jacobus Erasmus ◽  
Thabo Matsimela
Keyword(s):  
South African ◽  
Audit Committee ◽  
Best Practice ◽  
Good Governance ◽  
Local Governance ◽  
Audit Committees ◽  
Municipal Finance ◽  
Finance Management ◽  
Theoretical Perspectives

Stakeholders of organisations have to rely on the credibility and effectiveness of governance by management and oversight structures, such as the audit committee, to protect their interests. Drawing on the agency theory, the role of the audit committee is globally accepted to be one of oversight and monitoring. In contrast, the Municipal Finance Management Act requires South African municipal audit committees to be independent advisory functions, invoking the institutional theory in terms of symbolic display. In this article the research objective is to argue the anomaly in the Municipal Finance Management Act regarding audit committees' role, given that this deviates from the globally accepted norm. This conceptual article follows an interpretive approach, which includes a document analysis, firstly to establish the prevalence of the audit committee advisory expectation and, secondly, to argue from theoretical perspectives, whether the audit committee as an advisory function, has validity. The findings suggest that legislators should consider amending the Municipal Finance Management Act to reflect audit committee best practice or change the name of the municipal audit committee to that of an advisory committee to avoid misleading local communities in terms of what may be perceived as good governance practice. This article thus informs policymakers of an apparent governance anomaly in South African legislation.

scholarly journals The Municipal Audit Committee Self-review Threat: The South African Dilemma

2021 ◽  
Vol 24 ◽  
Author(s):  
Lourens Jacobus Erasmus ◽  
Thabo Matsimela
Keyword(s):  
South African ◽  
Audit Committee ◽  
Best Practice ◽  
The Self ◽  
Audit Committees ◽  
Primary Data ◽  
International Governance ◽  
Municipal Finance ◽  
Ethical Practices ◽  
Finance Management

Context: Corporate governance in South African municipalities is severely lacking and retrograding. The audit committee should essentially be an oversight committee that acts on behalf of the municipal council to ensure that key controls are operating, ethical practices are reinforced, key accounting estimates and judgements are properly made, and that internal and external audits are effective. However, the Municipal Finance Management Act requires that the audit committee acts in an advisory capacity to among others, the municipal management. This statutory requirement is in contrast to international governance code best practice for audit committees. Purpose: The aim of this study was to establish how municipal audit committee members perceive their role and whether they realise the self-review threat brought about by the role conflict between legislation and internationally accepted best practice. Design: A web-based survey questionnaire was used to collect primary data from municipal audit committee members. Findings: The study found that municipal audit committee members seem to be unaware of the self-review threat their perspectives on their role hold. Practical implications: Results of the study may assist policy makers and other stakeholders in drafting regulations and legislation governing the functioning and establishment of independent municipal audit committees in South Africa. Originality: Although the conflicting roles of assurance (oversight) and consulting (advisory) have received attention in the disciplines of external auditing and internal auditing, similar attention is needed in the case of South African municipal audit committees.

scholarly journals Audit committees: practices, practitioners and praxis of governance

2015 ◽  
Vol 28 (4) ◽  
pp. 466-493 ◽  
Author(s):  
Niamh M. Brennan ◽  
Collette E. Kirwan
Keyword(s):  
Boards Of Directors ◽  
Audit Committee ◽  
Best Practice ◽  
Practice Theory ◽  
Analytical Framework ◽  
Audit Committees ◽  
Content Type ◽  
Theoretical Perspectives ◽  
The Relationship

Purpose – The purpose of this paper is to review and critique prior research on audit committees using a practice-theory lens. Research on audit committees has followed the same trajectory as early research on boards of directors, which has been criticised for its singular theoretical perspectives and methodologies that do not capture the complexity of real-world experiences/behaviours. Design/methodology/approach – The authors devise an analytical framework based on practice theory to conduct the review. The authors examine what audit committees should do (i.e. best practice) vs what audit committees actually do (i.e. actual activities in practice – praxis). Attributes of audit committee members, and the relationship dynamics relevant to their role execution (i.e. practitioners), are considered. Findings – Research on boards has found that over-emphasis on agency theory’s monitoring role negatively impacts boards’ effectiveness. The authors invoke other theories in examining what audit committees do in practice. The authors characterise the role of audit committees as oversight not monitoring. The authors question whether, similar to auditing, audit committees are blamist tools or are genuinely orientated towards supporting improvements in organisational management systems. The authors unpack the ritualistic ceremonial behaviours and symbolic endeavours vs substantive engagement by audit committees. The analytical framework also considers the “guardianship circle” around audit committees in the form of the key practitioners and their relationships: audit committee members, auditors and managers. Originality/value – Drawing on the analytical framework, the authors provide directions for further opportunities for research of audit committees.

scholarly journals Driving Audit Committee Disclosure: Legislation Versus Best Practice

2019 ◽  
Vol 8 (1) ◽  
pp. 36-50
Author(s):  
Philna Coetzee ◽  
Lourens J. Erasmus
Keyword(s):  
Best Practices ◽  
South African ◽  
Voluntary Disclosure ◽  
Audit Committee ◽  
Best Practice ◽  
The Body ◽  
Audit Committees ◽  
Policy Makers ◽  
Body Of Knowledge ◽  
Support Organizations

Stakeholders have no alternative than to rely on the credibility and effectiveness of governance and oversight structures within organizations, to protect their interest. This study investigates whether the expectation for expanded disclosure on audit committees has been adopted as part of organizational culture. The evolution of audit committee guidance in the King reports and prominent global reports were analyzed and compared to legislation governing all sectors within South Africa. A document analysis in the form of a structured content analysis was conducted to determine adherence to King guidance by South African organizations. Optimal scaling was applied to determine dimensions of disclosure, with respect to audit committee best practice. Finally, the level of adherence to legislation versus adherence to best practices is gauged within each dimension. Results support organizations to have generally increased disclosure on audit committees’ composition and role. The study adds to the body of knowledge on voluntary disclosure of audit committee best practice, to be considered by policy makers and management, on what may strengthen the credibility and effectiveness of audit committee oversight as perceived by the stakeholder. The result also presents a foundation for further research within this area.

scholarly journals An investigation into the effectiveness of audit committees

2017 ◽  
Vol 13 (2) ◽  
pp. 46-54 ◽  
Author(s):  
Zandile Virtue Dlamini ◽  
Emmanuel Mutambara ◽  
Akwesi Assensoh-Kodua
Keyword(s):  
Financial Management ◽  
Local Governments ◽  
Audit Committee ◽  
Best Practice ◽  
Good Governance ◽  
Target Population ◽  
Audit Committees ◽  
Quantitative Methodology ◽  
Kwazulu Natal ◽  
Areas Of Concern

The fundamental purpose of this study was to investigate the effectiveness of audit committees in the eThekwini municipality within the province of KwaZulu Natal. The target population for the study was all the standing and audit committee members totalling 20, thus taking a census-based approach. The descriptive sections adopted a positivist paradigm employing quantitative methodology was used to examine information through techniques that revealed patterns, trends and relationships. Hence, a mixed methodology was the case in this study. The study revealed that the eThekwini audit committee was generally effective in discharging its oversight role in the council, though there were areas of concern, which include control frameworks and financial management to improve corporate governance. The study revealed that there was, to a large extent compliance with legal requirements regarding audit committees, as well as best practice processes. It is therefore important to point out that, this study outlines good practices of audit committees that are worthy of emulation and further improvement by the research community as a framework for good governance in local governments

IN THIS ISSUE

2020 ◽  
Vol 38 (2) ◽  
Author(s):  
Henning Melber
Keyword(s):  
South African ◽  
Economic Freedom ◽  
Good Governance ◽  
Human Security ◽  
Economic Transformation ◽  
South African Society ◽  
Strategic Issues ◽  
Finance Minister ◽  
Multiple Challenges

South African Finance Ministers (notably in the plural, given the events since December 2015) face multiple challenges. They deal not only with an economy in stagnation through an austerity policy as recently presented by Pravin Gordhan in his Medium Term Budget in late  October, but also with the sobering results of the limited socio-economic transformation since the end of apartheid. The contradictions prevailing since then are reflected not least in the devastating crisis sweeping across South Africa  universities. As if that is not enough, a Finance Minister concerned about good governance is also waging an uphill battle to reduce damage by trying to protect the state and its assets from further capture by predatory elites. Considering all of this, it is not surprising that a critical analysis of what is termed economic freedom, an interpretation of the meaning and its consequences, is a fitting contribution to the Strategic Review. Joleen Steyn Kotze presents such an examination in the first article of this issue. Her reflections compare and juxtapose the different notions and ideologies of economic freedom and the effects these may have if turned into policy. This invites further debate regarding the transformation of South African society, which inherited one of the most grossly unequal societies in our world, a condition yet to be markedly reduced. Debates are also required about other aspects that are relevant for a journal focused on regional strategic issues. These include not least the notion of human security and the role of the military. Thuso Benton Mongwaketse relates directly with his contribution, to a subject raised in recent issues.1) By concluding that "security and human security in particular, is fundamentally about responsiveness, accountability, and transparency in governance", he more than indirectly links the discourse on the role of a national defence force to the socio-economic dimensions dealt with in the first article.

scholarly journals Audit Committees Oversight Of Information Technology Risk

2003 ◽  
Vol 7 (4) ◽  
pp. 1-12 ◽  
Author(s):  
Linda B. Hadden ◽  
Dana R. Hermanson ◽  
F. Todd DeZoort
Keyword(s):  
Information Technology ◽  
Exploratory Study ◽  
Audit Committee ◽  
Audit Committees ◽  
Company Size ◽  
Factors Associated ◽  
It Risk

This exploratory study examines the role of the audit committee in overseeing information technology (IT) risk. We address the degree of audit committee oversight of specific IT risks, as well as factors associated with variations in audit committee IT oversight. Based on responses from 39 audit committee members, we found (1) little audit committee emphasis on oversight of IT risks, (2) audit committees involved with IT oversight focus on more traditional risks (e.g., monitoring), while very little attention is devoted to IT acquisition and implementation, and (3) the amount of IT oversight is positively associated with the responding members auditing experience and prior familiarity with the COBIT model for assessing IT risks. Audit committee independence, diligence, and expertise, company size, and industry were not significantly associated with IT oversight.

scholarly journals Establishing the relationship between an effective audit committee and infusion of a good control environment

2017 ◽  
Vol 13 (3) ◽  
pp. 52-58 ◽  
Author(s):  
Zandile Virtue Dlamini ◽  
Emmanuel Mutambara ◽  
Akwesi Assensoh-Kodua
Keyword(s):  
Audit Committee ◽  
Good Governance ◽  
Good Control ◽  
Working Environment ◽  
Audit Committees ◽  
Control Environment ◽  
Public And Private ◽  
Control Structures ◽  
Effective Performance ◽  
The Relationship

Audit Committees are a vital component of accountability and good governance for any serious organisation and have progressively been perceived as an integral part of modern control structures and control practices in both the public and private sectors. However, Audit Committees can only discharge such gigantic responsibilities in a conducive environment to provide its effective performance of certain key functions in the areas of oversight of risk management, reporting, and internal controls. Nonetheless, the enablement of such conducive environments has become a challenge to many Audit Committees. It is against this background that this study investigates the relationship between an effective audit committee and infusion of a good control environment. The study used structured and unstructured questions to investigate population comprising standing committee members and Audit Committee members. Thus this study made use of a mixed methodology to collect quantitative data as well as reviewing audit documents, such as, the Audit Committee Charter and minutes of meetings in order to ascertain the environment under which such august practices are performed. The outcome concludes that the Audit Committee which was selected for the study has the good working environment.

scholarly journals Corporate Social Responsibility, Audit Committee Expertise, and Financial Reporting: Empirical Evidence from Korea

2021 ◽  
Vol 13 (19) ◽  
pp. 10517
Author(s):  
Haeyoung Ryu ◽  
Soo-Joon Chae ◽  
Bomi Song
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Financial Reporting ◽  
Audit Committee ◽  
Earnings Quality ◽  
Audit Committees ◽  
Accounting Expertise ◽  
Corporate Social

Corporate social responsibility (CSR) involves multiple activities and is influenced by the cultural and legal environment of the country in which a firm is located. This study examines the role of audit committees’ (AC) financial expertise in the relationship between CSR and the earnings quality of Korean firms with high levels of CSR. Using a multivariate analysis, it investigates whether the ACs that include members with accounting expertise, finance expertise, or supervisory expertise individually affect a firm’s decision making. It also examines how ACs with diverse expertise contribute toward improving the financial reporting quality of firms with high levels of CSR. The results demonstrate that when there is a certified accountant in the AC of a firm that practices CSR based on ethical motivation, the earnings management through discretionary accruals is more strictly controlled. This is more effective when the AC comprises members with accounting and non-accounting expertise. This finding implies that the AC plays a positive role in improving the accounting information quality of firms with CSR excellence. Moreover, while the role of accounting experts in the AC is important for maintaining high earnings quality, combining other types of expertise creates synergy.

scholarly journals The state of internal audit’s regulatory mandate

2016 ◽  
Vol 6 (3) ◽  
pp. 93-99
Author(s):  
Christo Ackermann
Keyword(s):  
Board Of Directors ◽  
South African ◽  
Best Practice ◽  
Internal Audit ◽  
Audit Committees ◽  
Detailed Review ◽  
Internal Audit Function ◽  
Key Stakeholders ◽  
The Board Of Directors ◽  
State Of Affairs

The importance of an effective internal audit function in South African municipalities have been recognised insofar as internal audit functions are legally mandated to exist within municipalities. This also means that legally, internal audit has certain mandates which must be fulfilled in order to add value to management and audit committees, and ultimately, to the board of directors. Even though internal audit is sanctioned by this important legal mandate, evidence shows that internal audit does not always fulfil this mandate. This state of affairs has prompted a detailed review of the relevant laws and regulations governing the work of internal audit in South African municipalities in order to determine the extent to which key stakeholders find the regulatory work of internal audit useful in discharging their (stakeholders’) oversight responsibilities. Questionnaires were administered to audit committees. The results summarise the extent to which internal audit’s work assists audit committees in their oversight responsibilities as this ultimately affects the ability of audit committees to fulfil these responsibilities to the board of directors. The results indicate that audit committees are greatly dependent on internal audit as a provider of assurance on a variety of legally mandated variables. The results of this study can be used as a measure of best practice of the legally mandated duties performed by internal audit. It can also be used by other researchers in comparative studies and by practitioners to benchmark their work in order to better serve audit committees and ultimately, the board of directors.

scholarly journals KOMITE AUDIT UNTUK MENINGKATKAN TATA KELOLA PEMERINTAHAN DAN PENYAJIAN LAPORAN KEUANGAN DALAM RANGKA PENINGKATAN KINERJA PEMERINTAH DAERAH (STUDI KASUS PEMERINTAH DAERAH KABUPATEN BELITUNG)

2014 ◽  
Vol 1 (1) ◽  
pp. 1
Author(s):  
Alexander Ikhsan ◽  
Antar MT Sianturi
Keyword(s):  
Local Government ◽  
Audit Committee ◽  
Good Governance ◽  
Financial Statements ◽  
Financial Statement ◽  
Audit Committees ◽  
Government Performance ◽  
Qualitative Descriptive ◽  
Improved Performance

This research is a qualitative descriptive study entitled “Audit Committee to Improve Governance and Financial Statement in order to Improved Performance of Local Government (Case Study of District Government Belitung)”. The purpose of this study was to determine how much influence of the audit committee in the local government in order to improve governance and the quality of local government financial statement, and its associations with local government performance. Measuring the importance of the audit committee, which was measured using interviews with 15 respondents who have an influence on governance in the Belitung District Based on these results, we can conclude that audit committees in local government will improve the governance and the quality of local government financial statements presentation. And from the results of this study also found that the good governance and quality of local government financial statements presentation will improve the overall local government performance

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