Factors associated with the quality of audit committees Peter Baxter Faculty of Business, University of the Sunshine Coast, Sippy Downs, Australia Abstract Purpose – The purpose of this study is to analyse whether several indicators of audit committee quality are associated with a number of supply and demand factors such as board composition, board activity, auditor type and leverage. Design/methodology/approach – The 2001 annual reports of a random sample of 200 Australian listed companies were analysed and data gathered on several audit committee quality indicators, i.e. independence, expertise, size and activity. Regression analysis was performed to determine the level of association between these indicators and several board and other variables. Findings – The results indicate that, in 2001, many Australian listed companies were already complying with several of the ASX Corporate Governance Council’s recommendations relating to audit committees. Furthermore, in a time period absent of audit committee regulation, there was strong support for the influence of the board of directors on the composition and activity of the audit committee. Research limitation/implications – Consistent with prior research, this study confirms the influence of the board of directors on a number of audit committee quality indicators. Practical implications – Corporate regulators and companies will find these results useful to understand the factors driving several of the main indicators of audit committee quality. Originality/value – This study adds to the current limited empirical research on Australian audit committees by analysing several indicators of audit committee quality in a time period not affected by regulation. Keywords Audit committees, Corporate governance, Boards of Directors Paper type Research paper 1. Introduction Audit committees are now mandatory for companies in many jurisdictions around the world. This has largely been in response to the many high profile corporate collapses that have occurred in recent years. A lack of effective corporate governance is widely accepted as being the key failure behind most of the collapses (Leung and Cooper, 2003; Fridman, 2005). For example, in the case of Enron, it has been noted that corporate governance was weak in almost all respects. The non-executive directors were compromised by conflicts of interest and consequently the audit committee failed to The current issue and full text archive of this journal is available at www.emeraldinsight.com/0114-0582.htm This paper is based in part on Peter Baxter’s PhD thesis completed at the University of Southern Queensland (USQ). Funding support for Peter’s PhD was provided by USQ, Central Queensland University and a PhD scholarship sponsored by AFAANZ, CPA Australia and the Institute of Chartered Accountants in Australia. The author acknowledges the valuable comments on the paper from Julie Cotter, David Gadenne, Gary Monroe and participants at the 2008 annual conference of the Accounting and Finance Association of Australia and New Zealand (AFAANZ). The paper has also benefited from the comments provided by the two anonymous reviewers. Quality of audit committees 57 Pacific Accounting Review Vol. 22 No. 1, 2010 pp. 57-74 q Emerald Group Publishing Limited 0114-0582 DOI 10.1108/01140581011034227