Study On The Correlation Between The Audit Committee Policy System And Financial Reporting Frauds

During the 1940s, Audit Committee policy system had been established quietly in respond to corporate frauds. In nowadays, Audit Committee has executed one of the most important crucial functions among all professional committees under the Board. The responsibilities of an Audit Committee have explored from recruitment of external auditors and negotiation of auditing contracts to internal audit controls, generation of financial reports, evaluation of internal auditing and audition for financial reports in recent years. A significant number of scholars have conducted various detailed researches on Audit Committee from different angles. These researches provide positive driving forces to progressively improve Audit Committee through reasonable structures, function exploration and execution efficiencies, etc.The angle of this journal is trying to connect Audit committees and financial reporting frauds of listing firms. First of all, we evaluate whether there are relationships between Audit Committee policies and financial reporting frauds, and try to find out the patterns of such a relationship. Then, base upon how to improve current Audit Committee policies and system and establish effective mechanism, we will provide several suggestions on this issue.In this journal, we obtain information on penalized listing firms due to financial reporting frauds from China Securities Regulatory Commission (from year of 2002 to 2010). Then we choose 7 explanatory variables and 4 controllable variables, such as whether an Audit Committee exists in the firm, to conduct both sample T-test and WilcoxonMan and Whitney 2 sample test. The evaluation mainly base on whether there are correlation between Audit Committee and financial reporting frauds. Next, with both explanatory and controllable variables on fraud activities, we establish a regression model to find out flaws of current Audit Committee system. Finally, base on these analysis results we propose several suggestions and feasible solutions.