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The Audit Committee Impact

Winfried Ruigrok & Ancillo Canepa (Eds.)

abstract Executive Summary

In 2002, new corporate governance-related guidelines
were introduced in Switzerland that included recommendations
on the establishment, composition, structure
and processes of audit committees. This study presents new
evidence on audit committee patterns and trends at Swiss
listed companies, as well as on audit committee effectiveness.
The results of this study are important to individuals
and organizations dealing with audit committees, including
audit committee members, board members, internal and
external auditors, and other professional services firms.
This study documents trends in the establishment and composition
of audit committees, as well as regarding external financial
reporting subsequent to the 2002 corporate governance guidelines.
The report shows that Swiss companies that carefully followed
the guidelines were more likely to reap positive effects in
terms of quality of external financial reporting than firms that did
not follow the guidelines.

This Report Presents Four Main Findings

1.Audit committees matter. Over the past years a growing percentage
of Swiss companies have established audit committees.
This study shows that over the period 2002 to 2004, companies
that had established an audit committee were more likely to obtain
a clean audit opinion (at the group and holding company level) in
the year after, and were less likely to be the object of SWX sanctions
in the subsequent year.

2.Audit committee members’ independence matters. Over the
period 2002 to 2004, companies that had established an audit
committee with a high ratio of independent directors tended in the
subsequent year to be more likely to obtain a clean audit opinion
(at the group and holding company level), and less likely to be
subject to an official procedure initiated by the SWX Swiss
Exchange.

3. Audit committee members’ financial capabilities matter.
Over the period of 2002 to 2004, financial expertise increased the
quality of financial reporting. Audit committees with a higher percentage
of financial expert members were positively associated
with the quality of financial reporting in the subsequent year (significant
at the group level).

4.Audit committee practices vary widely. Swiss companies are
gaining experience with audit committees and best practices have
yet to emerge. Key aspects to note in running the audit committee
are to deliver information well in advance of the next meeting, and
to make sure members know in advance how many days they will
have to prepare the meeting.
   
type working report (English)
   
keywords Audit Committees; Corporate Governance
   
type of report Study
date of appearance 2005
publisher Ernst & Young / University of St. Gallen
review not reviewed
   
citation (2005). The Audit Committee Impact: Study: Ernst & Young / University of St. Gallen.