Abstract:
Audit committees have been widely recognized as a very effective mechanism for ensuring
good governance in corporate affairs. At present, the auditing effectiveness of most listed
companies in Sri Lanka is declining. This is because most listed companies do not consider
the different factors that impact audit committee effectiveness. Thus, this research examines
the effect of audit committee factors on audit committee effectiveness in relation to listed
capital goods companies in Sri Lanka. Audit committee size, audit committee independence,
audit committee meetings, and audit committee financial expertise were taken as audit
committee factors on audit committee effectiveness. The sample consists of 29 capital goods
companies listed on the Colombo Stock Exchange over the period 2017-2021. In this study,
data were collected from secondary sources, and the hypotheses were examined using
descriptive, correlation, and regression analyses. The results of this study show the audit
committee meetings and audit committee independence are positively related with audit
committee effectiveness. Audit committee size and financial expertise have a negative
relationship with audit committee effectiveness. With R2 = n, the results of the study could be
beneficial for managers and directors in making suitable choices about audit committee factors
and corporate governance mechanisms to enhance the company’s audit committee
effectiveness. It provides a better understanding of the different factors required for audit
committee effectiveness, and the study strongly recommends that audit committee factors are
much more important for the audit committee effectiveness of listed capital goods companies.
Further, this study contributes to the literature by identifying the audit committee factors in a
company audit committee effectiveness.
