Audit committees in Maltese listed companies and their perceived effectiveness : an assessment

Abstract

PURPOSE: The objective of this study is to assess and analyse the effectiveness of ACs within MLCs with respect to the following five determinants: composition, authority and resources, diligence, internal audit contribution and assessment. DESIGN: In order to ensure that the objective was achieved, this study adopted a qualitative mixed-method approach to collect data. Sixteen semi-structured interviews were conducted with ten MLC representatives, four EAs and two Regulators. FINDINGS: The findings indicate that there is still some disagreement as to the extent of Maltese ACE. The appointment of AC members is left to the discretion of the Board which tends to appoint the NEDs to the AC without sufficient considerations for their competences and possibly their effective independence. Moreover, although financial competence is required on ACs, and formal qualifications are sought, there is as yet no statutory requirement for such qualifications. Additionally, ACs might be over-burdened with extremely varied objectives and with insufficient resources for them to reach all such objectives. AC meetings held by MLCs seem to surpass the minimum requirement stipulated by law and this is perceived to be contributing to their effectiveness. Moreover, although IAFs are seen as fundamental for ACs to reach their objectives, the lack of a statutory requirement to establish IAFs is probably negatively impacting ACE. Finally, although there seems to be a general opinion that AC assessment is necessary, the introduction of tighter regulation, such as a statutory requirement to introduce an independent third party in such process, is likely to encounter opposition. CONCLUSIONS: This study concludes that, while Maltese ACs are generally effective, such effectiveness could be higher and certain determinants of ACE are as yet much less effective. Therefore, more needs to be done in terms of regulation and also in terms of better communication among the relevant parties.

IMPLICATIONS: This study sheds light on the somewhat ambiguous perceptions that seem to prevail regarding the effectiveness of Maltese ACs. It is hoped that the recommendations enable companies to derive more value from their ACs and to prompt regulatory authorities to specify additional guidance in certain areas.