Audit Committee and Internal Control Effectiveness in Public Sector Entities
Abstract
This paper reports the findings of a study that examined the audit committee and internal control effectiveness nexus. The study worked on the assertion that the audit committee of the board enhances internal control effectiveness, which is widely documented and supported, more so in the private sector. As a result, many public sector entities ' governing boards are increasingly establishing such audit committees. Yet, it is unclear to what extent such increase in audit committees contribute to public sector entities ' internal control effectiveness, especially in developing economies. This study, therefore, examined the explanatory power of the audit committee ' s characteristics, internal control specific oversight processes, and management support on the effectiveness of internal control of the reporting entity. Data was collected using structured questionnaire administered with key audit committee stakeholders of social security funds in Tanzania. Ordinary Least Square (OLS) was used to multi-regress the investigated independent variables against the dependent variable. Overall, results show that audit committee characteristics, audit committee internal control specific oversight processes and management support to audit committee significantly account for internal control effectiveness. Indeed, internal control specific oversight processes have the most significant positive explanatory power followed by management support to the audit committee and audit committee characteristics, respectively. Scholars, policymakers, audit committees, boards, and managers may use the results of this study to inform strategies and/or interventions aimed to improve audit committee ' s contribution to internal control effectiveness.References
Alzharani, M. A., & Aljaaidi, S. K. (2015). An Empirical Investigation of Audit Committee Effectiveness and Risk Management: Evidence from Saudi Arabia. Accounting & Taxation, 7(1), 39-49.
Bananuka, J., Nkundabanyanga, K. S., Nalukenge, I., & Kawaase, T,(2018). Internal audit function, audit committee and accountability in the Ugandan statutory corporations. Journal of Financial Reporting and Accounting, 16(1), 138-157.
Bank of Tanzania.(2017). Financial Stability. Dar es Salaam: Bank of Tanzania.
Bank of Tanzania (2014). Banking and Financial Institutions Subsidiary No.33. Dar es Salaam: Bank of Tanzania.
Beasley, M. S., Cune, R., & Hermason, D. R. (2005). Enterprises Risk Management: An Empirical Analysis of Factors Associated with the Extent of Implementation. The Journal of Accounting and Public Policy, 24 (6), 521 -531.
Beasley, M.S., Carcello, J. V., Hermanson, D. C. R., & Neal, T. L. (2009). Audit Committee Oversight Process. Contemporary Accounting Research, 26(1), 65-122.
Berkman, O. & Zuta, D. S. (2017). The impact of Audit Committee Size and Composition on Negative Events in the Life of a Company: The Case of Israel. European Financial Management, 23 (1), 1-24
Cohen A., & Sayag, G. (2010). The Effectiveness of Internal Auditing: An Empirical Examination of its Determinants in Israeli Organizations. Australian Accounting Review, 20(3), 296-307.
Committee of Sponsoring Organizations (2004). Internal Control Intergrated Framework (COSO -2004). Coopers and Lybrand/Committee of Sponsoring Organizations of the Treadway Commission. https://www.coso.org.
Dewayanto, T., Suhardjanto, D., Bandi, & Setiadi, I.(2017). Ownership Structure, Audit Committee, and Internal Control Disclosure: Indonesia and Philippines. Review of Integrative Business & Economic Research, 6(4), 353 €“ 363.
DeZoort, F., & Salterio, S. (2001). The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members ' Judgement. Auditing: A journal of Practice and Theory, 20(2), 31-47.
DeZoort, F., Hermanson, D., Archambeault, D., & Reed, S. (2002). Audit Committee effectiveness: a synthesis of the empirical audit committee literature. Journal of Accounting Literature, 21(2002) 38-75.
Dittmeier, C. & Casati, P. (2014). Evaluating Internal Control Systems: A Comprehensive Assessment Model (CAM) for Enterprise Risk Management. Florida: IIARF.
Dodo, A. A. (2017). Corporate Collapse and Role of Audit Committees: A case Study of Lehman Brothers. World Journal of Social Sciences, 7(1), 19-29.
Gendron, Y., Bedard, J. & Gosselin, M. (2004). Getting inside the black box: a field study of practices in effective audit committees," Auditing Journal of Practice and Theory, 23(1), 153-171.
Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E. and Tatham, R.L. (2010). Multivariate Data Analysis. 7th Edition. Upper Saddle River: Pearson Prentice Hall.
Hoitash, U., Hoitash, R. & Bedard, C. J. (2009) Corporate Governance and Internal Control over Financial Reporting: A Comparison of Regulatory Regimes. The Accounting Review, 84 (3), 839-867.
Khlif, H. & Samaha. K. (2016). Audit committee activity and internal control quality in Egypt. Does external auditor ' s size matter? Managerial Journal of Auditing, 31(3), 269 €“ 289.
KPMG €“ACI (2016). Global Boardroom Insights: Audit Committee Effectiveness. New York: KPMG
Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607-610.
Krishnan, J. (2005). Audit committee quality and internal control: An empirical analysis. The Accounting Review 80 (2), 649 €“675.
Lambright, K. (2009). Agency Theory and Beyond: Contracted Providers' Motivations to Properly Use Service Monitoring Tools. Journal of Public Administration Research and Theory. 19(2), 2007-227.
Menon, G. & Williams, J.D.(1994). The usage of audit committees in monitoring. Journal of Accounting and Public Policy, 13(2), 121-139.
Mihret, D. & Yismaw, A. (2007). Internal audit effectiveness: An Ethiopian public sector case study. Managerial Auditing Journal, 22(5), 470-484.
Michelon, G., Bozzolan, S. & Beretta, S. (2015). Board monitoring and internal control system disclosure in different regulatory environments. Journal of Applied Accounting Research, 16(1), 138-164.
Nicholson, G. J., & Kiel, G. C. (2007). Can Directors Impact Performance? A case-based test of three theories of Corporate Governance," Corporate Governance: An International Review, 15(4), 585-608.
Neuman, W. L. (2005). Social Research Methods: Quantitative and Qualitative Approaches. Boston: Allyn and Bacon.
Ogoro, G. O. & Simiyu, C. N. (2015). Effectiveness of Audit Committees in the Public Sector: A case of Parastatals in Kenya. Research Journal of Finance and Accounting, 6 (4), 56-65.
Pallant, J. (2013). SPSS survival manual. McGraw-Hill Education.
Peng, M. W., Sun, L.L., Pinkham, B. & Chen, H. (2009). The Institution-based view as a third leg for a strategy tripod. Academy of Management Perspectives,36(4), 63-81.
PwC.(2011). Audit Committee Effectiveness: What Works Best?. Florida: IIA Research Foundation.
Raghunandan, K. & Rama, D. V. (2007). Determinants of Audit Committee Diligence. Accounting Horizons, 21(3), 265-297.
Rich, T. K. & Zhang, X. J. (2014). Does Audit Committee Monitoring Matter in the Government Sector? Evidence from Municipal Internal Control Quality. Journal of Governmental & Nonprofit Accounting, 3 (1), 58-80.
SOX.(2002). Pub. L. No. 107-204, 116 Stat. 745. Retrived from https://www.sarbanes-oxley-101.com
SSRA (2018). Social Security Regulatory Authority Annual Report for the Financial 2017/2018. Dar es Salaam: SSRA
Treadway Commission (1987). Report of the National Commission on Fraudulent Financial Reporting. Washington, DC.
Yatim, P.(2009). Audit Committee Characteristics and Risk Management of Malaysian Listed Firms. Malaysian Accounting Review, 8(1), 19 -36.
Downloads
Published
Issue
Section
License
CopyrightCopyright © by University Of Dar-es-Salaam Business School, University of Dar es Salaam
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without permission in writing from the publisher, except for short extracts in fair dealing, for research or private study, critical scholarly review or discourse with an acknowledgement.
Business Management Review [ISSN 0856 2253 (Print) & ISSN (Online)] is published bi-annually, June and December by University Of Dar-Es-Salaam Business School, University of Dar es Salaam, and P.O. Box 35046 €“ Dar es Salaam €“ Tanzania.
