School of Accountancy
The article describes the factors that contribute to audit committee effectiveness. An effective audit committee has qualified members with the authority and resources to protect stakeholder interests by ensuring reliable financial reporting, internal controls, and risk management through its diligent oversight efforts. The determinants of audit committee effectiveness includes the audit committee composition, authority, resources and diligence. The major U.S. stock exchanges require that audit committees be composed of at least three independent, financially literate directors. Team issues also are relevant when considering audit committee composition. The audit committee derives its authority from the full board of directors, federal law and exchange listing requirements. Authority is viewed as a function of the audit committees responsibilities and influence. Audit committee authority also depends on the audit committees relationships with management, external and internal auditors and the board as a whole. The resource component of audit committee effectiveness highlights that effective oversight is contingent upon the audit committee having adequate resources to do its job. Diligence is the process factor that is needed to achieve audit committee effectiveness.
Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature