Audit Committees and Their Effectiveness
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Audit Committees and their effectivenessAudit committees play a vital role in the capital markets investor protection framework through their oversight of the audit engagement and the companys financial reporting process. According to the definition of sarbanes-oxley, the audit committee is initiated by the securities companys board of directors and committee of members of the board of directors (or groups) of the same meaning, the purpose is to supervise the companys accounting, financial reporting and corporate accounting statements audit. Emergence and development of the concept of audit committee can be thought of as in the United States and Canada in the event of several high-profile fraud and corporate bankruptcy. Since 1978, the New York stock exchange has asked all of the listed company fully equipped by the audit committee composed of independent directors. In December 1992, the British council of Canterbury signed a report about corporate governance advice all of UK listed companies should set up the audit committee. Shortly after that, the London stock exchange will set up the audit committee into its “best application code”. In 1998, Hong Kong to London study, also will audit committee included it the best application code, this means that since January 1, 1999, all in the center daily news listed companies and the annual report must include a statement and to show the company follow the code of conduct related to the audit committee, or explain the reason for not following the rules. It actually means that in the past 3 years, all good in Hong Kong listed companies have the audit committee.Set by the board of directors is responsible for internal accounting control, the supervision of the financial statements and other financial matters. The audit committee is set up by the board of directors of the specialized work, mainly responsible for the companys internal and external audit, supervision and inspection work to communicate.The audit committees main responsibilities include: audit and supervision and external audit institution is objective and independent audit program is effective; external auditors to provide non-audit services policy making and implementation; to review the companys financial information and its disclosure; to supervise the companys internal audit system and its implementation; responsible for the communication between internal audit and external audit; review the companys internal control system audit significant related party transactions.The audit committees main goal is to supervise and urge to provide effective financial reporting, and control, identify and manage the risks of many factors on the companys financial situation. Companies face the risk of competition, environmental, financial, legal, operational, regulatory, strategic and technical aspects and so on. The audit committee itself unable to monitor all these risks, should be determined by the parties to cooperate (including the other committee of the board).The audit committee as an institution of the board of directors, mainly to the board of directors, senior managers and internal and external auditors focus on effectivefinancial reporting and risk management (key risk identification and control) is of great importance.The audit committee has three effectivenesses: 1. Company internal audit organization the auditing committee of the board of directors, the Chinese independent from the management authority, this pattern makes the internal audit has strong independence and authority. The audit committee on the function of internal auditing supervision, through to the articles of association of the internal audit activity, budget and personnel, work plan and review, audit results, improve the independence of the internal audit department, make its work scope is not restricted by the administration, much attention and make sure the audit results, internal audit function is practically.
2. The audit committee is responsible for all the external audit affairs, in this way, discovered a major problem in the process of auditing for certified public accountants can communicate directly with the audit committee, is advantageous to the significant issues in a timely manner to solve and guarantee the independence of certified public accountants. When the auditing opinions of certified public accountants and authorities dont agree or conflict, its independence is threatened, communicate with the audit committee and seek protection, can effectively play a role of certified public accountants independent verification.3. The audit committee is responsible for internal and external auditing department communication, integrate internal and external audit of the audit resources, can the independent, fair and effectively evaluate the effectiveness of the internal control and the reliability of financial report and report to the board of directors and the shareholders general meeting.The audit committee is a committee of the board of directors, the establishment of it is to use financial information to the board of directors and company financial statements issued by the increased the assurance of quality and reliability.The audit committee shall be formed into a committee of directors, the committee should have a clear division of their permissions defined in writing. Was formally established the audit committee can guarantee its and shall be responsible for the board of directors has a clear relationship between. In particular, should be clearly defined perform services on behalf of the board of directors of the rights and responsibilities of the scope of committee. Responsibilities should be formally approved by the board of directors.Audit committee system is an important of effective corporate governance structure of the system arrangement, is in the relevant professional organizations, legislative bodies and developed under the enterprise own requirements to promote. Audit committee as an independent financial strength, in the board it to strengthen the certified public accountants audit independence, strengthen the companys financial report information authenticity and reliability.For the first time since 1967, the institute of certified public accountants formally in all listed companies set up by the executive director of the audit committees advice, the various professional organizations and professional bodies have been in all aspects of research. And the audit committee responsibilities is one extremely important aspect.In 1979, the American institute of certified public accountants of a special committee devoted to the audit committee system In order to encourage the formation of the audit committee of listed companies provides an advice about the audit committee responsibilities. Believe that the audit committee main responsibility is to supervise and check the authenticity of corporate financial reporting and the fair sex, and coordinate with external auditing division. The report focuses on the audit committee to coordinate the external and internal audit and supervision and internal control, its core content is suggested that the audit committee has supervision and internal control, check the financial report, assessment and guide the three functions of the audit work related to the company, it for the listed companies in the United States to set up the audit committee to provide operational guidelines.