Research On The Normative Nature And Functioning Mechanism Of Audit Committee

As an important governance mechanism, audit committee is widely discussed in academia. But the research of audit committee's normative nature and functioning mechanism is less, and the result is not congruous. Understanding the normative nature and functioning mechanism of audit committee correctly, dealing with the governance relationship of audit committee, giving an annotation of audit committee's system background, can improve the efficiency of audit committee and make it perfectly.Adopting normative research method, based on the of principle-agent theory, accountability theory, signal transfer theory and enterprise theories, this paper discusses board of directors system and independent director system, especially discusses the nature of the board of directors and independent director. This paper considers the enterprise as the perform process of exchange contract on property rights of factors, which was invested by the human capital owners and material capital owners. The factors owners own the final property of the enterprise, which refers to residual claim and residual right of control. In the enterprise there is an accountability chain based on principle-agent relationship, and thus formed an authorization and control system. The managers as a trustee have double status. The first is human capital owners, and thus they own the residual claim and residual right of control as an investor. The second is trustee, and they own the given right to manage the enterprise under the authority of the board of directors. In the corporate governance, the human capital owners always abuse the material capital owners, so the first agency problems appear. So the board of directors system comes to the corporate governance. The nature of board of directors is keeper of capital of shareholders. The manager taking part in the board of directors is to oversee their own capital, which was invested in the corporate.The sharing system of the corporate control rights is only a misty power border. Circled around the sharing system of the corporate control rights based on accountability chain, there is also a decentralization and balance system, which was called corporate governance system. The core of satisfactory governance is sufficient information disclosure. Audit system is the institutional arrangement in order to realize the information quality. Insider control caused by large shareholder leads to the second agency problems. On behalf of the small shareholders, independent directors performing the residual right of control and becoming the members of the board of directors is a rational institutional arrangements. So the nature of independent directors is the proxy of small shareholders to perform their residual right of control of the corporate. But the current audit system can't control the aberrance of auditing relation, because of manipulating the audit opinion under the second agency relationship. So the audit committee system was introduce to solve this problem.Draws a conclusion, the normative nature of audit committee is a device in order to make the audit system run correctly and to assure the independence of outer auditor. The audit committee is a special agency to represent the shareholders to perform the audit- assignment power and in charge of the outer auditor management. The members of audit committee must have supernormal independence and professional competence. They must keep independence from managers of the corporate, and in the charge of the shareholders. This paper also designs the functioning mechanism of audit committee based on the analysis of information control right. And this paper also discusses some questions in front of the designed audit committee's functioning mechanism.