Leadership and Corporate Audit Committee Effectiveness

Audit committees are standing committees of corporate boards of directors with responsibility for overseeing the company's annual audit and coordinating the efforts of external auditors, senior management, and internal auditors. Despite the growing importance of audit committees in corporate governance and despite the increasing attention given to corporate financial fraud by the media and by the U.S. Congress, little research has inquired into the determinants of audit committee effectiveness. The purpose of this study was to examine audit committee effectiveness in terms of the leadership styles of audit committee chairpersons. Results of a survey mailed to audit committee members, external auditors, and senior management suggest that transformational leadership and active management by exception, as defined by Bass (1985), have a substantial impact on the performance of audit committees.