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Abstract

This article reviews the regulations and governance reforms carried out in India with respect to auditor and audit committee independence. In doing so it critically compares them with the regulations existing in the US. This is followed by a discussion of the existing research on the effectiveness of audit committees and audit independence in corporate governance. Recent trends in audit committee and auditor characteristics for a sample of large listed companies in the Indian corporate sector are then discussed. The article concludes by suggesting some governance reforms that may be considered to further strengthen auditor independence and the functioning of audit committees in India. [WP-2010-020]

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... The audit committee has the right to interrogate any staff member. (Sarkar & Sarkar 2010). The audit committee has the right to get external legal and professional advice that it considers necessary to carry out its investigations (Sarkar & Sarkar 2010). ...
... (Sarkar & Sarkar 2010). The audit committee has the right to get external legal and professional advice that it considers necessary to carry out its investigations (Sarkar & Sarkar 2010). Sarkar and Sakar (2010) stress that there was an amendment in the regulation of India which previously required that all the audit committee members must be non-executive directors. ...
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The aim of the underlying study to this paper is to evaluate the audit committees in the government ministries in Namibia; by assessing their composition, the function and regulations that govern committees. The study used a qualitative approach of inquiry. A purposive sampling method was used as the researcher selected ministries with audit committees. Thematic and content analysis was used in this study. Both primary and secondary and data were used. On primary data, interviews were conducted and recorded with a voice recorder. Secondary data was during the review of existing literature on the subject. The study found that from the 4 government ministries with audit committees, only one ministry consisted of independent members as well as an independent chairperson, while 3 ministries are chaired by members within their organisations. There was clear evidence of lack of accounting / financial /auditing competence among the committee members. This trend is contrary to the best practice which requires that the chairperson of the audit committees be independent of the ministry as well as the members of the audit committee. The finding indicates possibility of lack of capacity to carry out the functions of audit committees; weak internal control systems; chances of conflict of interest and complacency due to the lack of independence. There is avenue for further research as more ministries in Namibia are now establishing their audit committees, especially as the Namibian Code of Corporate Governance (the NamCode) gains more popularity among the public sector.
... However, neither the Companies Act nor the listing rules of BSE use the word ''non-executive'' in specifying the membership of the audit committee. As Sarkar and Sarkar (2010) point out, this is a ''dilution'' of the independence requirement for Indian audit committee members because by not requiring the committee members to be non-executive directors, the regulations allow top executives of a company to also be on the audit committee. This can potentially infringe upon the independence of the audit committee. ...
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This research discusses the key events that led to the establishment of the current regulations pertaining to the functioning of audit committees in six major capital markets of the world, namely, the U.S., U.K. Australia, India, South Africa, and Argentina, and also presents the findings based on a comparison of these regulations. Specifically, the authors review the changes that happened either proactively or sometimes as a reaction to certain events in each of these securities markets, leading to the current audit committee regulations. Also, the relevant local laws and requirements of the regulatory bodies along with the listing rules of the stock exchanges in the above six nations are examined to study how the requirements are both similar as well as different across the six continents. Given the increase in the number of multinational corporations selling shares in different capital markets where such entities have to conform to the regulations of each such market, a study of the audit committee regulations is expected to give some insight into how much rigor the different capital markets of the world have with respect to their expectations of the composition of the audit committee, what the committee’s role should be, how it should conduct its business, and to whom it should report. The study shows that each of these six nations has had its share of corporate scandals and/or abuses of power by senior business executives that first caused losses for investors, and eventually led to the current regulations. In some of these markets, audit committee regulations advanced from being recommendatory and “principles-based” to being mandatory mainly because of the pressure from external stakeholders. The newer regulations in each securities market generally, though not always, represented improvement over the previous versions. The study also shows that today the audit committees of companies listed on the different stock exchanges being examined in this study are subject to similar or sometimes identical requirements in some respects. At the same time, there are other requirements where the authors see minor as well as noticeable differences. All in all, NYSE emerges as the stock exchange with the most rigorous expectations from the audit committee on various matters and especially with respect to the monitoring of the independent auditor. While the audit committee regulations in the developed world of the U.S., U.K., and Australia have set good examples of governance practices before the rest of the world, the securities markets in the emerging economies of India, South Africa, and Argentina are not far behind. There are areas where the regulations in India and South Africa actually demand more from their audit committees compared to those in the developed markets.
... These findings indicate that corporate governance could be considered an effective internal tool to achieve greater audit independence. Sarkar and Sarkar (2012) examined AC independence in India. They determined that strengthening auditor independence and enhancing the powers, functions, and independence of the AC will be crucial for the governance of Indian companies. ...
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Accounting has often been described as the language of business. As the increasing competition of overseas markets begins to affect even the smallest local companies, many more business professionals must become fluent in accounting principles and practice. Standardization of Financial Reporting and Accounting in Latin American Countries highlights the recent move to International Financial Reporting Standards (IFRS) and addresses some of the concerns raised due to cultural differences and the level of enforcement of these standards in separate countries. Describing the evolution of both financial and managerial accounting due to the adoption of IFRS, this book is an essential reference source for both students and seasoned professionals in the fields of accounting, finance, and related management fields, especially those with an international emphasis.
... An AC is, therefore, required to be " independent " of the management and has the " key " responsebility of deciding the scope of work, including the fixation of audit fees and the determination of the extent of non-audit services. As Sarkar and Sarkar (2010) [49] very aptly pointed out, " The basic idea is to make the auditor not to be dependent on " inside " management, both in terms of discharge of its functions as well as in terms of its survival. " Tables 5 and 6 summarize the trends regarding a AC independence in the Indian corporate-sector . ...
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Nowadays, an audit committee (AC) is being looked upon as a distinct culture for CG and has received a wide-publicity across the globe. Government authorities, regulators and international bodies all have indicated that they view an AC as a potentially powerful tool that can enhance the reliability and transparency of financial information. Being mandatory under Security Exchange and Board of India (SEBI’s) Clause 49 of the Listing Agreement, an AC can be of great help to the board in implementing, monitoring and continuing “good” CG practices to the benefit of the corporation and all its stakeholders. This study performs a “content” analysis on the AC reports of the top 500 listed companies in India during 2005 to 2008 to determine the information content of these reports and the extent to which these reports conform to the Clause 49 requirements of the SEBI. Also, discussed are the various trends about an AC characteristics viz., size, composition, activity, as well as, the extent of non-audit services provided by auditors in the top 500 listed Indian companies. No doubt, it is essential for the Indian corporations to accept and continue with the CG reforms that are “demarcated” by the challenges of the “new” millennium.
... Independence of Auditors has been an area of extensive research in accounting literature and studies in this genre have looked at the effect auditor independence on earnings management, earnings informativeness, and other measures of earnings quality, Sarkar & Sarkar (2010). Theory and the empirical literature suggest that auditor and audit committee independence play an important role in the governance of companies. ...
Article
Worldwide, the presence of independent directors on the board of listed companies is seen as an integral element of a company’s corporate governance process and has become a pre requisite for good governance. Consequently, in the recent years, governance reforms in India have increasingly pinned hope, as well as responsibility, on independent directors to achieve higher standards of governance in organizations.Unlike the Anglo Saxon world, where the key corporate governance challenge is disciplining the management and making it accountable to the distributed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder(s) and protecting the interest of the minority shareholders. Therefore independent directors, in Indian business organizations, can become effective only when their appointment process is outside the influence of the dominant shareholders.This paper examines the current state of corporate boards among the S&P CNX 500 companies in India and reviews the impact of the changes that have been introduced in the recently amended Companies Act, 2013 and the suggestions in the consultative paper issued by SEBI on revisions to clause 49 of the Listing agreement dealing with corporate governance. While, with the recent changes, significant steps have been taken to strengthen the role of independent directors on the board of listed companies, the process for the appointment of independent directors needs to be further strengthened so as to improve board effectiveness in listed companies.
... Firm Performance -measured by Tobin's Q has been taken by us as the dependent variable in our study. This is the most frequently used performance variable , in academic literature, to assess firm performance; Demsetz and Lehn (1985), Pant and Pattanayak (2007), Sarkar & Sarkar(2010), Selarka(2007). By definition, it is the ratio between the market value of the firm's assets and the replacement value of those assets and captures the market's view of the firm's ability to utilize its assets. ...
Article
Unlike the central governance issue in the Anglo Saxon world, which is essentially that of disciplining management that may stop being accountable to the owners, who are dispersed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder and in protecting the interest of the minority shareholders. Other forms of domination, besides family ownership, such as domination by government or a foreign group also exist in Indian organizations; additionally, often promoters of companies exercise influence that is disproportionate to their actual shareholding.Our study finds that differences in the nature of the dominating shareholder result in significant differences in the firm’s corporate governance characteristics. Furthermore, while the corporate governance parameters do not have any significant impact on the firm’s performance, the nature of the dominating shareholder significantly impacts the firm’s performance
Article
Purpose In the shadow of global financial crisis, practice of earnings management can be hazardous for the growth and development of an economy, especially for a developing economy like India. This empirical study is performed to analyse the presence of earnings management practices in Indian public and private commercial banking industry. This study also aims at developing a framework for the three-way relationship existing between the variables of corporate governance, earnings management practices and firm performance. Design/methodology/approach Data have been collected for a period of 11 financial years (2003-2013) from Prowess (Centre for Monitoring Indian Economy) 4.14 database. A bank-based accrual model has been used for calculating earnings management practices. OLS regression has been used for analysing degree of interdependence among variables of corporate governance, earnings management practices and financial performance. Findings The analysis supports the fact that there is the existence of income increasing earnings management practices in Indian commercial banks. It is also observed that corporate government practices (viz. board characteristics, audit practices and performance-based remuneration) basically work as restricting variables for earnings management practices. It is evident from the analysis that market-based firm performance variables (viz. PE ratio, yield and profit after tax) are significantly related to earnings management and corporate governance system. Practical implications The finding of this study will help in monitoring and controlling fraudulent earnings management practices existing in Indian commercial banks. Originality/value This study is the initial research about the presence of earnings management practices in Indian commercial banks.
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