Audit committee guidance for strengthened corporate governance

Abstract

The major research question in this paper is how to provide guidance to board of directors’ audit committees in order to strengthen corporate governance. Audit committees have a direct responsibility to oversee the integrity of a company’s financial statements and to hire, compensate, and oversee the external auditor. Public focus, especially by activist and passive investors, on how audit committees discharge these responsibilities has increased significantly. As analyzed in this paper, indications that this current audit regime is not working are overwhelming. Neither the public interest nor the needs of investors are being served by the auditor-client relationship as it exists. The reforms suggested in this paper represent advances that would help both board of directors’ audit committees and the auditing profession become trusted watchdogs of public companies’ financial information. This paper speaks to the growing research attention to the audit function and maps out the well-developed strategies to advance the audit quality. The major sections of this paper are a century of audit opinions, 21st-century frauds, fraud analysis, auditor assessment tool (created by The Center for Audit Quality), auditor continuing issues, auditor upgrades, discussion, and conclusion