Corporate Governance and characteristics of Audit Committee in UK

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CHAPTER 01: INTRODUCTION1

1.1 Background of the Study1

1.2 Problem Statement3

1.3 Aim and Objectives4

1.4 Research Questions4

CHAPTER 02: LITERATURE REVIEW5

2.1 Introduction5

2.2 Reason of Establishing the Audit Committee5

2.3 Development of Audit Committee6

2.4 Duties of an Audit Committee7

2.5 Experimental Studies8

2.6 Indicator of Effectiveness of Audit Committee13

2.6.1 Fee Ratio of Non-Audit Services13

2.6.2 Earnings Management14

2.7 The Characteristics of an Audit Committee14

2.7.1 Independence16

2.7.2 Industry and Financial Competency17

2.7.3 Diligence18

2.8 Hypothesis19

CHAPTER 03: RESEARCH METHODOLOGY21

3.1 Proposed Research method21

3.2 Data Collection22

3.3 Data Analysis23

REFERENCES24

CHAPTER 01: INTRODUCTION

1.1 Background of the Study

An Audit commit Committee shows the mechanism of governance that is required to function in an effective manner to limit the agency problems that may arise in future due to the separation of corporate control and ownership. The conventional view of corporate governance is that it focuses on the shareholders' interests, treating them in an equitable manner and practices of transparency and disclosures by the management, observing board's role, its independent auditors and committees.

These kind of monitoring roles ensure proper probity, openness and accountability in the business corporation's construct. The view of ACs effectiveness can be matched with the roles that have been recognised for an AC. An AC is known to have 3 major roles of monitoring: monitoring of (1) external auditors, (2) internal controls and (3) external financial statements (Goergen and Renneboog, 2008).

Audit Committees' effectiveness is affected with the collective characteristics of its members, with the majority of independent members who frequently meet and have authority to provide protection to the interests of the stakeholders with their diligent efforts that are oversight.

A number of studies that were conducted previously have addressed aspects in their designs for the studying the effectiveness of the ACs (Goddard and Masters, 2000). This research aims to have a practical point of view, in order to obtain an improved understanding of how the Audit Committees can become more effective for the shareholders, regulators and board as there is a significant cost of agency and benefits in operating the AC. The ineffectiveness of the Audit Committee does not take in to consideration the monitoring of failures. When an audit committee fails there are number stakeholders who have to suffer the loss.

The ACs has an important role in compliances. Firms having more independent members of the board and have more effective committees for auditing discloses more information regarding the impact of IFRS in the financial statements. Audit Committees have reduced the information asymmetries between the outsiders and insiders of the company at the time of change to IFRS from GAAP. Audit Committees for the firms have a good track record of the practices of corporate governance and they monitor this process of change in a more effective manner and ensure more transparency at the time when the IFRS is introduced (Goergen and Renneboog, 2008).

Since the past two decades the ACs became a mechanism for the practices of corporate governance on an international level. The non-mandatory structures that were used by the corporations which were a minority, recently various regulatory and ...