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The purpose of this paper is to examine the conditions and processes affecting the operation of an audit committee within the context of a New Zealand district health board (DHB).

The methodology used in this paper was exploratory and qualitative, including the analysis of secondary data and semi‐structured interviews.

Using the New Zealand Auditor‐General's best practice guidelines for a public sector audit committee as a benchmark, the paper finds that the DHB rates moderately well in terms of “effectiveness potential”. However, factors are identified concerning the audit committee members' independence, competence, tenure, and remuneration, which impinge upon the overall effectiveness of the audit committee. Despite apparent shortcomings in these areas, the informal networks between audit committee members and management serve to maximise the “realisation” of what potential effectiveness exists. As a result, the audit committee is perceived by its stakeholders (management, auditors, and committee members) as being a valuable tool to assist the DHB board in achieving proper governance.

There are no specific regulatory or legislative requirements for establishing audit committees in the New Zealand public sector. The findings from this paper may be useful to public sector entities that are considering establishing an audit committee and to entities, including the one in this paper, that wish to improve the effectiveness of their existing audit committees.

Most studies of audit committees to date have focuses on corporate sector entities; this is the first qualitative paper of an audit committee of a public sector entity in New Zealand.