An investigation into the roles, characteristics, expectations and evaluation practices of audit committees

This paper aims to investigate how the roles, characteristics, expectations and evaluation practices of audit committees have adapted to regulatory change and what practices are most conducive to effective audit committees.

This paper uses semi-structured interviews with audit committee chairs and chief audit executives.

While new regulation is a primary driver of changes in the roles of audit committees, the audit committee’s role has evolved beyond regulatory requirements. Audit committees are taking a more active role in organisational governance and performance in key areas such as risk management. However, while audit committees have a clear concept of what characteristics committee members require, conceptual frameworks and mechanisms for evaluating the performance of committees and their members remain underdeveloped.

The responses of audit committees in Australia to broader regulatory trends suggest that more research is required into how audit committees function in practice, and into developing new frameworks for evaluating the committees’ performance. This paper provides an in-depth exploration of key areas of audit committee performance, and identifies aspects that might be further investigated.

The paper identifies key attributes of effective audit committees and especially the characteristics of audit committee members. The paper also identifies a need to improve – and in many cases create – performance evaluation frameworks and mechanisms. Given the international regulatory trend towards greater reliance on audit committees to improve governance, more policy attention is required on developing guidelines and assessment processes that evaluate whether audit committees are fulfilling their legislative mandate in practice.

The paper contributes to the relatively new and more specific discussion on reviewing and evaluating the performance of the board and its subcommittees.