Corporate governance : an audit committee perspective on monitoring costs

Abstract

This thesis discusses Corporate Governance. The Enron collapse and scandal with Arthur Andersen galvanized the corporate world into hysterical over reaction into corporate governance issues. Since Enron there have been numerous corporate collapses despite the advent of corporate governance (CG). Committee after committee was established to create codes of conduct and practice for directors and attesters. Politicians enunciated sweeping changes and advocated legislation to curb director and auditor activity to bring about transparency. Controversy exists whether legislation similar to Sarbanes-Oxley or whether codes similar to Cadbury (UK), Higgs (UK) and King 2 and 3 (South Africa) will bring about a better quality of CG. Nothing even established now, could have prevented the Enron collapse caused by mostly ethical failure coupled with bad attesters and creative accounting. Corporate governance, despite its complexity, does not have an identifiable structure or crisp definition. The new South African Companies Act 71 of 2008, effective implementation date 1 May 2011 places a great onus on directors and audit committees in regards to the management of companies. The audit committee is mandatory and is responsible for among other things the risk assessment and appropriate protection of the company. Having an hypothesis that institutions and conservative investors will pay a premium for shares in companies with declared codes of practice and perceived good CG and avoid those with poor records of transparent reporting and CG, this paper delineates the perceptions of good corporate governance through the audit committee (AC) perspective on control. As its result section shows, this study looks at the effect of a relevant audit committee role responsibility, that of risk management. "The AC responsibilities and approach to their tasks represent a critical oversights area that deserves closer scrutiny, particularly given concerns about financial-reporting abuses and a lack of relevant expertise and diligence among audit committee members". (DeZoort et al, 2001; Salterion, 2003) The results reflect that there are correlations between Indemnity Cover and audit fees, the presence of an audit committee, governance firm structure and share ownership.