1 - Jabatan Audit Negara

...from pg 6
Linked Companies (GLC).” The circular
stipulates that:
• The AC should be established as
a committee of the board with
written terms of reference;
• A membership of three or
more with a quorum of two
independent non -executive
directors;
• All members of the committee
should be non-executive
directors and majority of them
including the chairman should
be independent;
• It is advisable for at least one
member of the committee to
have financial or accounting
expertise; and
• The committee shall meet
at least four times annually
or more frequently as the
circumstances dictate.
In Malaysia, GLCs accounted for
RM260 billion in market capitalization,
which is approximately 36% of the
Bursa Malaysia - KLSE and 54% of
the Kuala Lumpur Commodity Index
(KLCI). Therefore, it is important
to assess the level of effectiveness
of the AC in those GLCs. A study
was conducted by Universitiy of
Malaya to determine the relationship
between the AC effectiveness and
its characteristics (independence,
financial expertise, size and activities
of ACs) in the Malaysian GLCs. In
doing so, four main hypotheses were
used:
• H1 – Independent AC is likely
to result in more effective AC
• H2 – Effectiveness of AC is
enhanced by if the members of
AC are financial literate
• H3 – Active AC enhances the
effectiveness of AC
• H4 – Large size of ACs enhances
the effectiveness of ACs.
In this study, 93 out of 186 GLCs listed
on the Malaysian Treasury homepage
were randomly selected. Data were
collected through self-administered
survey to the Chief Executive Officers
(CEO), Heads of Internal Audit or
Company Secretaries. The response
rates were 37.65%.
Findings of the Study
The findings showed that 59% of the
GLCs have established the ACs for
more than 10 years, 19% of them
have formed their ACs between 3 - 5
years and 3% claimed that their ACs
aged below 1 year. In relation to the
ACs membership, it is found that 94%
of the memberships were appointed
by the Board of Directors (BODs).
The remaining 6% were appointed by
the Ministry of Finance. The study
also showed that 80% of the GLCs
have between 1- 3 finance literate
members in their ACs.
All the respondents indicated that
their ACs have written charter which
is in accordance with Bursa Malaysia
listing requirements. The finding is
in line with Zulkarnain et al., (2007)
which stated that the disclosure of
the AC charter would provide users
of the financial statements with
information relating to the roles and
responsibilities of the AC. It is also
evident that 86% of the respondents
indicated that their charter has been
revised annually. Clear and updated
charter indicates the vigorousness
of the ACs in pursuing the corporate
governance of the GLCs.
The study showed that 66% of the
respondents claimed that their ACs
comprised of accountants as members
while 25% of them claimed that they
have expert members with typical
finance responsibilities while another
3% showed their members have other
experiences outside the business.
The accounting knowledge of the AC
members is generally good among the
GLCs where 31% of the respondents
perceived the level as excellent while
another 36% indicated as very good
and only 3% claimed to have par level
of accounting knowledge.
The study found that independence
and activities scores are the highest
of the AC characteristics in GLCs
compared to the size of the ACs.
According to the study, the most
important roles of an AC are to review
and to analyze on the adequacy of
the internal accounting and financial
control. The study indicated that
finance literate, independence
and activity have positive and
significant correlations with the ACs
effectiveness.
Conclusion
In order to enhance the effectiveness
of ACs, it is proposed that the BODs
should emphasize on the appointment
of finance literate members. This is
in support of the current debate on
the appointment of independent AC
members who are knowledgeable in
accounting, auditing and finance. The
researchers hoped that these findings
will facilitate the government to
develop a specific measurement
system to evaluate the effectiveness
of ACs. Other characteristics that may
influence the ACs effectiveness such
as shareholders, stakeholders, power
& leadership style, and support from
management should be the areas for
future study.