Page 15 - AAA Integrated Workbook STUDENT S18-J19

Regulatory environment

3.3 Benefits of an audit committee

 Improved credibility of the financial statements through an impartial review of
the financial statements and discussion of significant issues with the external
auditors.

 Increased public confidence in the audit opinion as the audit committee will
monitor the independence of the external auditors.

 Stronger control environment as the audit committee help to create a culture of
compliance and control.

 The internal audit function will report to the audit committee increasing their
independence and adding weight to their recommendations.

 The skills, knowledge and experience (and independence) of the audit
committee members can be an invaluable resource for a business.

 It may be easier and cheaper to arrange finance, as the presence of an audit
committee can give a perception of good corporate governance.

 It will be less of a burden to meet listing requirements if an audit committee
(which is usually a listing requirement) is already established.

3.4 Drawbacks of an audit committee

 Difficulties recruiting the right non-executive directors who have relevant skills,
experience and sufficient time to become effective members of the committee.

 A fear that their purpose is to police executive management.

 Non-executive directors may be overburdened with detail.

 Non-executive directors are normally remunerated and their fees can be quite
expensive.

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