This paper investigates the compliance of audit committee requirements among Malaysian public listed companies. Three issues are analyzed: Independence of audit committee; audit committee meetings; audit committee report. The discussion focuses on the aspects of composition, independence, chairperson and reporting of the committee in the company's annual report. These factors were considered important by Malaysian regulators with the aim to promote better corporate governance, transparency, efficiency in the capital market activities, and to strengthen investor protection and confidence.
One
of the most significant methods to strengthen corporate governance in Malaysia
was the establishment of an audit committee in each listed firm, which was initiated
before the outbreak of the Asian Financial Crisis in 1997. The history of audit
committees in Malaysia began when the Central Bank (Bank Negara Malaysia/BNM)
prescribed the setting up of audit committees for financial institutions in 1985.
However, the formal development of audit committees began in 1991. Prior to this,
the Malaysian Institute of Accountants (MIA) prepared a proposal on fraud prevention
entitled `Fraud Prevention Measures', which suggested that the government require
all public companies to establish audit committees. The proposal pointed out that
audit committees could help to strengthen the financial reporting of company,
and provide an early warning system.
In
1991, the MIA, in conjunction with the Malaysian Institute of Certified Public
Accountants (MICPA) and the Malaysian Institute of Internal Auditors (MIIA), submitted
a memorandum to the Companies Commission (CC), the Capital Issues Commission (CIC)
and the Bursa Malaysia Berhad (BMB), recommending that an audit committee be made
mandatory for companies seeking listing on the BMB. Since 1994, Section 344A of
the BMB listing requirements has required every company seeking admission to the
BMB to form an audit committee comprising a majority of directors that were independent
of the company's management. Listed firms were given a grace period of 12 months
(from August 1, 1993) to form an audit committee. This requirement was imposed
to improve investors' confidence in the capital market through providing an avenue
for compliance with the need for better quality and more credible financial information.
In view of enhancing the capability of audit committees to better achieve their
objectives and to promote better corporate governance, transparency and efficiency
in capital market activities, and to strengthen investor protection and confidence,
the BMB Listing Requirements have been revised with additional requirements that
took effect from June 1, 2001 (BMB, 2001). |
