The Malaysian Code on Corporate Governance (MCCG) postulates that “an independent audit committee (AC) serves to implement and support the oversight function of the board in several ways” (FCCG, 2000, p. 38). Indeed, audit committee is appropriate to undertake the board of directors roles in providing “focused review and detailed discussion of the company’s processes for producing financial data, its internal controls, and independence of its external auditor”, which it “might be too time-consuming for the full board” (FCCG, 2000, p. 36). This paper investigates the role of audit committee and their support for auditor independence. An independent audit committee enhances the independence of external auditor, and ensures that auditor is free from management influence. The committee will conduct informal and private meetings without the presence of company’s management to encourage the external auditor to be transparent on material issues at an early stage.
The concept of an AC has evolved over many years across developed countries and now has become a mandatory listing requirement in most stock exchanges worldwide. In Malaysia, the new code of corporate governance and the amended stock exchange’s listing requirement provide evidence on the importance of audit committees in ensuring transparency of information and quality financial reporting.
There are many aspects of audit committees that could be explored in the context of support for good corporate governance practices in the corporate sector. This paper, focuses on the impact of audit committee support (i.e. meeting, report, role to approve audit fees, role to review audit fees, composition) on external auditor independence. It is expected that an effectively functioning audit committee will contribute towards auditor independence and hence ensures the quality of financial reporting.
The next section discusses the documented evidence on this issue in previous studies, followed by research design in section 3. The findings are discussed in section 4, while the conclusions are summarized in section 5.
2. Previous Evidence
Documented evidence on effectiveness of audit committees in enhancing good corporate governance have focused on various aspects, but the issue of interest in this paper is the support of audit committee in enhancing auditor independence (Beattie et al., 1999; Collier, 1992; Dockweiler et al., 1986; Fearnley and Beattie, 2004; Jackson- Heard, 1987; Knapp, 1987; Mautz and Newman, 1970). Knapp (1987) discovered that an audit committee is more likely to support the auditor instead of management in audit disputes and the level of support is consistent across members of the audit committee, regardless of 本文来自优.文~论^文·网原文请找腾讯32491,14 of CPA firms. Pearson (1980) and Dockweiler et al. (1986) showed that auditors’ reliance on management is reduced due to the direct communication with the audit committee.2452