Abstract
D.Comm.
Accurate, credible and reliable financial reporting is critical for the effective
functioning of the world’s capital markets and the protection of the interests of
stakeholders, who rely on such information for their decision making. All the well-
known corporate collapses of the 21st century have in common fraudulent
financial reporting, unscrupulous management practices and the fact that they all
had audit committees consisting of well-known and respected people. This state
of events highlighted the fact that audit committees should not merely exist as
window-dressing, but should be effective in their functioning.
Audit committees will thus only be of value if they are properly constituted, are
functioning effectively and if their role is clearly understood by all the parties
concerned. This study’s research problem was to analyse the effective
functioning of audit committees in the modern business environment, and the
study aimed to investigate the factors and events that impact on the
development, status and effective functioning of audit committees at large listed
companies in South Africa. This was done through a comprehensive literature
study of the factors impacting on audit committees and the empirical testing
thereof at the largest listed companies in South Africa.
The study found that audit committees 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. However, audit committee reporting
in annual reports was found to be of a poor standard and did not reflect the
iii
actual workings and effectiveness of the committee. It was also found that the
audit committee’s perceived responsibilities are evolving and that audit
committee members’ legal liabilities are increasing.
The research findings make a valuable contribution to the existing body of
knowledge on current audit committee practices and developments. The study
also outlines new responsibilities for future audit committees, as well as aspects
that should be addressed in future legislation, regulations, corporate governance
codes and best practice standards for audit committees.