Audit Committee Composition in the Malaysian Code on Corporate Governance (MCCG) 2024

The 2024 update to the Malaysian Code on Corporate Governance (MCCG) emphasizes the importance of audit committee composition. The update recommends that the Audit Committee comprise solely of independent directors. This article explores the significance of this update, supported by extensive research and practical implementation strategies.

Key Insights

• Ensuring Independence: Having an audit committee composed entirely of independent directors ensures that the committee can operate without undue influence from management, enhancing its ability to provide unbiased oversight.

• Enhancing Oversight: Independent audit committees are better positioned to oversee financial reporting, internal controls, and risk management processes effectively.

Research Findings

• Best Practices: The International Federation of Accountants (IFAC) recommends independent audit committees as a best practice, contributing to improved financial oversight and governance.

• Enhanced Financial Reporting: Studies by Deloitte indicate that companies with independent audit committees tend to have higher-quality financial reporting and fewer instances of financial restatements.

Implementation Strategies

• Selection Criteria: Establish clear criteria for selecting independent directors with the necessary financial expertise to serve on the audit committee.

• Training and Development: Provide ongoing training and development programs for audit committee members to enhance their knowledge and skills.

• Regular Assessments: Conduct regular assessments of the audit committee's performance and independence to ensure continued effectiveness.

Conclusion The recommendation for audit committees to be composed solely of independent directors, as highlighted in the MCCG 2024 update, is a critical step towards enhancing financial oversight and governance. By implementing this practice, companies can ensure unbiased oversight, improve financial reporting quality, and strengthen their governance framework.