Research On Motivation And Effectiveness Of Audit Committee In Chinese Listed Company

Audit committee is independent special committee attached to board committee, is an important institutional mechanism in corporate governance. The audit committee is deemed as a mechanism that can improve the quality of reported financial information and ensure the corporation accountability performed perfectly. The responsibility of audit committee include:valuating the corporation internal financial control system and risk management system; supervising corporation financial report system, internal audit and external audit. The establishment and relief the responsibility of audit committee play an important role in corporation governance. In developed country such as England and U.S, audit committee have a history of decades because of its important role and function in corporation governance.Audit committee originated in 1938,the United States Mekesson & Robbins medicine corporation's bankruptcy. The company's serious financial fraud, so that the community started to pay attention to supervision and control to the managers of corporate governance. In 1972 SEC issued the "establishment of an audit committee composed of outside directors," the first time required explicitly all public companies to establish the Audit Committee composed of outside directors to protect the interests of investors who use accounting information. Into the 21st century, the role of the Audit Committee get society further attention because of a series of financial fraud and audit failure cases accurred in the U.S. and Europe. American and British securities regulators have enacted a bill to enhance the status of the Audit Commission in the framework of corporate governance, and improve the content of the audit committee system to adapt to the changing economic environment. In China, on August 162001, the China Securities Regulatory Commission released the " guidance of establishing an independent director of listed companies." The guidance anounced that:"If the listed company's board consists of remuneration, audit, nomination committee, independent directors should account for more than half in the Committee proportion." On september 2001, the China Securities Regulatory Commission released"The Regulation Rule of China list company"(draft),which pointed out that the board of the listed company ought to setup strategy, audit, nomination, salary and examine committee according to the decision of shareholder meeting, This is our first official presentation of the listed companies to establish audit committee system. In January 2002, the SFC and the State Economic and Trade Commission formally promulgated the "The Regulation Rule of China list company", require listed companies to have an audit committee on a voluntary basis, and clearly the main responsibilities of the Audit Committee. The majority of China's listed companies have set up the Audit Committee so far. However, there are many environmental differences in economic sense between China and West Country. In U.S. or U.K., the shareholders of listed corporation disperse almostly. Audit committee must be formed to alleviate the conflicts between shareholders and managers. In China, ownership structure of listed corporation is concentrated comparatively, and listed corporation set up audit committee voluntarily. Based on the characteristics of listed corporation ownership structure in china, this dissertation focuses on the factors which influent the formation and the effectiveness of audit committee.This paper describes the background and meaning, which is referred to the company's financial fraud case these years, the listed company's financial information distortion in serious condition, not only to severe economic losses for listed companies themselves, but also to combat investor confidence and undermine the majority of the interests of investors and undermines the running order of the securities market, affecting the construction and development of China's market economy. The significance of this paper is listed on the factors and governance performance of an audit committee, hoping by studying the audit committee system can provide a solid theoretical foundation and empirical data for better development in China in the future.Secondly; the paper reviewed the literature of home and abroad on the study of audit committee, as this paper would like to study the establishment motivation and the governance efficiency of the Audit Committee, so a review of literature also mainly attention to motivation and efficiency. While the Board in the Western countries have decades of development history, but the motive for the establishment of the Audit Committee is still no clear answer. Marrian, and Collier in Britain, represented by scholars, through empirical research has drawn his own conclusions, such as the Audit Committee is only the response to the situation; the Audit Committee in the U.K may reflect the intentions of avoiding legal to resolve corporate governance deficiencies. In the U.S., there are a lot of opportunities to explore the motivation of the Audit Committee and literatures are very rich. Such as Cobb, Eichensher and Shields searched the establishment motivation of the Audit Committee. Examine the role of the Audit Committee and governance performance, mainly focus on the following areas:the Audit Committee Characteristics and quality of financial reporting, the Audit Committee and Internal Audit, the Audit Committee and external audit. The introduction of the Audit Committee to our country is not long, the relevant theoretical and empirical research literatures are insufficient, early studies focused on the norms of the Audit committee system, the introduction of foreign development process of the Audit Committee as well as our vision to establish this system.-With the development of the audit committee system, many domestic scholars began to explore the nature of empirical research, empirical research is focused on the motivation and the efficiency of the Audit Committee.The empirical research of this paper can be divided into two parts. Based on the agency conflict between the controlling shareholder and other minority shareholders, the first part investigate the factors which influent audit committee formation in listed corporations. The results show that the controlling shareholder's equity ratio reached a certain level would generate predatory effect, they will use their power to prevent the establishment of the Audit Committee and reduce the costs of its predatory corporate resources. when they have absolute control, they have more obvious motive, which does not require the more effective supervision. But the controlling shareholders'behavior will encourage non-controlling shareholders to take action to protect their own interests. The more power to balance the non-controlling shareholders have, the more likely to establish an audit committee. balance of the company ownership structure is conducive to the improvement of monitoring mechanisms. In addition, in the course of the study also found that equity will also affect the nature of the establishment of the Audit Committee. State-controlled listed companies based on its own circumstances and policy have motivation to establish audit committee, On the contrary, for non-state-owned stock holding company, its controlling shareholder to strengthen for control of the company, the company are less likely to have an audit committee. In other affecting factors, the number of independent directors, company size, asset-liability ratio and earnings per share are positive related to the establishment of the Audit Committee. The second part of empirical research we studied the efficiency of audit committee based on the view of earning management and audit opinion. Empirical data show that in our country earning management level of Setting the Audit Committee companies is lower than that not setting. Meanwhile, the establishment of the Audit Committee can also be less likely to access non-standard audit opinion, indicating the Audit Committee play a role in the quality of supervision and control of financial information. The results also show that the internal audit committee of independent directors could not well play to its own responsibilities, Company size and other financial indicators also can affect the earnings management behavior and the external auditors'audit opinion.Based on the theory of agency conflicts between the controlling shareholder and other minority shareholders, we find firstly the factors that influent audit committee formation in listed corporation. This research therefore contributes to the theories of ownership structure and corporation governance as well, and helps us to understand how ownership structure imposes on the conducts of corporation. Hope that more research will be related to the Audit Committee and provide more adequate basis to make it into practice and to guide practice, thereby strengthening the supervision of listed companies, reduce financial fraud.