The Challenge of Improving Corporate Governance by Creating Effective Audit Committees.

Author(s)

Dr. Madan Lal Bhasin ,

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Volume 5 - August 2016 (08)

Abstract

Even though there are many measures to put corporate governance (CG) in place and practice, an important tool essential for the success is the effective functioning of an audit committee (AC). As the eyes and ears of the board, the AC plays a pivotal role in helping to stop or reverse the rise in reported fraud incidents worldwide. Now-a-days, an AC is being looked upon as a distinct culture for CG and has received a wide-publicity across the globe. Regulation has bolstered the role of the AC in past years. Government authorities, regulators and international bodies all have indicated that they view an AC as a potentially powerful tool that can enhance the reliability and transparency of financial information. Being mandatory under the SEBI’s Clause 49 of the Listing Agreement, an AC can be of great help to the board in implementing, monitoring and continuing ‘good’ CG practices to the benefit of the corporation and all its stakeholders. This study performs a ‘content’ analysis on the AC reports of the top 500 listed companies in India during 2010 to 2013 to determine the information content of these reports and the extent to which these reports conform to the Clause 49 requirements of the SEBI. Also, discussed are the various trends about an AC characteristics viz., size, composition, activity, as well as, the extent of non-audit services provided by auditors in the top 500 listed Indian companies. The 2013 Companies Act in India makes comprehensive reforms to virtually all areas affecting corporate governance. Thus, an effective AC can be a key feature of a strong CG culture, bringing significant benefits to an organization. The effectiveness of the ACs is based on the characteristics of independence, financial expertise and diligence

Keywords

Improving corporate governance, effective audit committees, SEBI Clause 49, Sarbanes-Oxley Act, listing agreement, board of directors, financial reporting, India. 

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