Audit committees: Transparency and trust regarding financial information

Abstract

One of the most prominent aspects of good governance over the last two decades has been the Audit Committee, which handles some of the tasks previously held by the Board. The Audit Committee is i.a. intended to increase public confidence in financial information in the general capital market. Transparency and trust do not increase automatically. Careful and honest practices are essential to gaining the trust of stakeholders. This study raises the question of whether effective audit committees increase transparency and trust in company financial information. The article is based on two surveys, on the one hand from 2016 where the members of the audit committees in entities related to the public interest were participants and on the other hand from 2018 where external auditors of those entities were participants. The article discusses the attitudes and opinions of participants regarding the establishment of audit committees regarding transparency and trust regarding financial information. Such a study has not been conducted before in Iceland. Hypotheses were put forward as to the opinion of the groups regarding the establishment of audit committees. The results are i.a. that the majority of committee members and external auditors believe that both transparency and trust have increased with the work of committee members in audit committees. What draws attention to the study, however, is that the result is not as decisive as might have been expected, ie. a large group of both committee members and external auditors believe that the establishment of audit committees has not increased transparency and trust with regard to financial information. That conclusion calls for further research, e.g. by asking more stakeholders about their views on audit committees and their role in increasing transparency and trust. This also calls for research aimed at assessing the effectiveness of audit committees in the governance system of public interest entities.