Audit Committees: Is There a Role for Corporate Senates and/or Stakeholders Councils?

There is currently increasing pressure for the mandatory establishment of audit committees in both the private and public sectors. Audit committees, as presently conceived, cannot adequately manage the conflicts of interest and loyalty to board colleagues which arise from boards processing information which is used to evaluate their own performance. As a complementary approach, this paper examines the use of binary boards in both the private and public sectors for improving the management of conflicts. The origin, development and use of audit committees in the private and public sectors within the US and Australian context is reviewed. Audit Committees are compared with the use of supervisory boards in Europe, and the development in Australia of a corporate senate in the private sector and client (stakeholder) councils in the public sector. The paper notes that audit committees were initially created in the US to protect outside directors in a different context than currently exists in either the US or Australia. While they may also serve the interest of management and auditors, Audit Committees may not protect shareholders and operational stakeholders. The paper concludes that the audit expectation gap could be minimised through management becoming accountable to a Corporate Senate in the private sector, and a Stakeholder Council in the public sector, with the auditor being engaged by and reporting to these bodies.