Corporate governance : a well-qualified and experienced audit committee

Abstract

The purpose of this study was to indentify collective skills and background that audit committee members must have in order to be effective. In addition, the study examined the extent of prevalence of each skill indentified, which can then be deduced into model to work out the right combination of audit members according to qualifications, experience and skills that they posses. The model can thus be used in selecting candidates to serve in audit committees. Two categories of samples selected from a list of the top 100 companies for 2008 to 2010 and a combined list of the bottom 20 companies for the 2005 to 2009 and the bottom 20 companies for 2010, compiled by Inet Bridge and published by Business Times, were used in the study. Profiles of audit committee members of companies selected in the samples, which were published in the annual reports of the respective companies in which they were serving as audit committee members were consolidated with those published on Bloomberg Business week website, http:investing.businessweek.com/research /stocks/people/ person, and thereafter summarized. The profiles indicated qualifications, professional background, business management experience and a list of companies that each member was serving or had served as a member of board of directors. Skills categories adopted in Audit Committee Institute (2006) were used in analysing expertise, experience and background of audit committee members, namely financial, business management, corporate director, legal and industry specific background. The variables were statistically tested using t-test and chi-square. The results of the study revealed that finance, corporate director and business management were necessary for an audit committee to function effectively. The study further found that legal and industry specific background were least considered skills in the composition of audit committees.