The Research On The Effects Of Audit Committee Upon Corporate Governance

Audit committee system is type of internal control in corporation, starting from the United States and the United Kingdom. As one of important management tool, this system plays significant role in financial governance and structure of corporate governance. Audit committee was introduced in China in 2002, and since then, there have been many discussions about the construction of it. Although it is difficult to go forward, this new system has kept developing for five years and has been applied by many Chinese listed companies. Up to the end of 2005, 34.06% Chinese listed companies have set up audit committees. But facing at their inactive performance, we also have doubts whether they have exerted influence and whether they have gone far from the original aim. And how much influence could auditing committees bring into improvement in Chinese corporate governance if they really did their jobs? Only if we made it clear of the doubts and questions above, we would know whether we should keep audit committee System and how to develop it. In this dissertation, I study the effectiveness of execution of Chinese audit committee system by combining theoretical and practical methods, on the purpose of providing some thoughts and suggestions on the development of Chinese audit committee system.In the dissertation, firstly I theoretically discuss about the role of Audit Committee in corporate governance and the style of its conduction, by taking a look at theories concerned with corporate governance and theories of accountability. By revealing that audit committee can guarantee good corporate management, I draw a clear picture of the relationship of audit committee and corporate governance. Then I make a further discussion about the effects of audit committee. In light of complication and importance of effects concept of audit committee, I analyze this issue by dividing this concept into two aspects. Further, I provide some suggestions on improving effects of execution of audit committees in China on the basis of practical analysis. The content of this dissertation is divided into five sections. The first section not only points out the purpose of this research but also sets up the direction and methods of the research. Besides it summarizes the present studies in this field, and also points out some contributions and defaults of the dissertation. The second section focuses on the relationship of audit committee and corporate governance. In this section, it states that audit committee is born for efficient execution of accountability in corporate governance. The third section discusses about the effects of audit committee theoretically. It is the key part of the dissertation. It divides the concept into two aspects, that is, the effect and the efficiency. Then it analyzes the word of effect by applying the concept of duty to make it more concrete and try to establish a complete system for audit committee duties. As to the efficiency, it basically emphasizes conditions to get the high efficiency of audit committee. The fourth section applies practical method for further research on the effectiveness of auditing committee, with mathematic models and collected data from Chinese listed companies in Shanghai Stock Market from 2002 to 2005. The result shows that the audit committees to some extent exert their influence on corporate governance in china. But on the other side, it is still clear that the audit committees are less developed and needed to be improved. Thus there comes the last section. This section puts three chief suggestions.As a whole, four creative points through the dissertation is worthwhile to be paid attention to. First, the dissertation analyzes the role and the influence of audit committee in corporate governance on the basis of theory of accountability. Second, it completes the theory of effectiveness of audit committee by dividing the concept of effectiveness into two concrete definitions. Third, the dissertation applies practical analyzing method with 2002-to-2005 data collected from Chinese listed companies in Shanghai Stock Market. And it reaches the conclusion that audit committee system is worth being developed in China. Last, the dissertation provides some suggestions on how to complete audit committee system and how to improve effectiveness of this system.The dissertation, however, is confronted with two main shorts. For one thing, it only collects data from Shanghai Stock Market in the process of testing the effectiveness of Chinese audit committee. Thus the data collected might not be representative all over china. For another, the dissertation divides effectiveness into the effect and the efficiency in theoretical way, but merely puts more emphasis on the former in practical analysis due to limited practical analyzing methods and models. To test the efficiency of audit committee, more testing methods are expected to be created and developed.