Abstract
An audit committee is an important mechanism of corporate governance. This abstract conceptualises the research, which evaluates the efficiency of the audit committee in reinstating stakeholders’ confidence in financial reporting processes. When there are poor financial reporting results, stakeholders question the role of audit committees. Following the recent outbreak of financial scandals, stakeholders tend to question the effectiveness of the audit committee/auditors. Moreover, stakeholders will demand answers for poor performances of the audit committee in performing financial reporting.
The main objective of this research was to assess the role of the audit committee in improving financial reporting in the Department of Sport, Recreation, Arts and Culture. This research also tried to achieve specific objectives as follows: (1) to gain an understanding of the Audit Committee (AC) and its role in improving financial reporting; (2) to examine the methods employed by the audit committee in improving financial reporting in the public sector; (3) to assess the effectiveness of the AC in improving financial reporting; and (4) to establish the challenges faced by the AC in improving financial reporting in the public sector, together with proffering recommendations on how to overcome these challenges.
This minor dissertation is underpinned by two theories which are the agency theory and stakeholder theory. These theories are important in this research as they explain the effectiveness of the audit committee in improving financial reporting.
For the researcher to achieve the research objectives, a qualitative research methodology through interviews was employed to gather the while thematic analysis was used to analyse the collected data regarding the current state of affairs of the audit committee in a South Africa’s public sector entity. The case study research design was chosen due to the fact that it is unique in bringing together variables and situations to form a whole picture. In this study, the researcher employed a six-step process for conducting thematic analysis, which included familiarization, coding, theme generation, theme review, theme definition and naming, and the final write-up.
On the first objective, which was the role of the Audit Committee in improving financial reporting, the theme identified was that the AC evaluates significant matters and
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decisions made by management in reviewing the financial reports. Furthermore, the audit committee plays its role better when it is functioning effectively, as it helps the board to conduct its oversight responsibilities of financial reporting. An audit committee is therefore an important mechanism of financial reporting.
Findings on the second objective, to examine the factors identified by the audit committee in improving financial reporting in the public sector, stated that the methods that have been employed by the audit committee in improving financial reporting in the public sector include the independence of the AC, remuneration of the AC and financial competence of AC. Moreover, the tenure of the committee should not be too long, and each member of the audit committee should have financial proficiency together with a professional qualification from accredited professional accounting institutions.
The focus of the third objective was to evaluate how effectively the audit committee enhances financial reporting. Research shows that various factors, such as having a competent audit committee, can improve the quality of financial reporting. Supporting respondents' opinions, multiple studies demonstrate that effective audit committees—marked by independence, gender diversity, a larger size, and regular meetings—can significantly reduce earnings management by enhancing financial reporting quality and decreasing occurrences of accounting irregularities and fraudulent practices.
On the last objective, which was, the challenges encountered by the AC in improving financial reporting, respondents mentioned challenges such as: issues of complexity and risk, lack of financial statement integrity and lastly, the AC are blamed for not performing functions which are not in their jurisdiction, such as punishing the fraudsters and corrupt individuals.