Independence, Expertise and Experience of Audit Committees: Some Aspects of Indian Corporate Sector

Abstract

The current study is based on the review of literature to analyses how independence, expertise and experience of audit committees can influence the quality of financial reporting. After studying a vast and diverse range of literature pertaining to the audit committees and governance issues, an effort has been made through this study to demonstrate several aspects of independence of audit committee, for example, informativeness, CEO’s power, frequency of meetings, substitutability and complementarity with alternative corporate governance mechanisms, directors’ share ownership, earning management etc. Similarly a wide range of literature based on utility of financial and accounting knowhow and experience of audit committee members has been reviewed. An attempt is made to establish association litigation risk that the firm faces and market reaction, to the firm’s appointment of audit committee members with accounting and financial expertise and experience. This study also includes the various aspects of audit committee in India, based on regulations, corporate governance reforms and the limited number of empirical research findings. Lack of independence, expertise and experience of audit committees have rendered them less effective in performing their oversight functions. The Companies Bill (2009), a major governance reform, has not become an ‘Act’ as it is delayed due to political apathy, and at the same time some interim reforms have eroded the independence of audit committees even further. There is ad-hocism and vagueness in reference to corporate governance reforms in general and auditing process in particular.