The Effect Of Audit Committee On The Quality Of Financial Reporting

As a significant system to perfect the structure of modern corporate governance,audit committee plays a positive role in perfecting corporate governance structure and improving the quality of finance information.Many scholars all over the world have always focused on if the audit committee can have an influence on the quality of finance reporting.Based on a review of studies around the world,firstly,this paper theoretically analyses audit committee system and its effectiveness,it also emphatically studies the establishment and characteristics of audit committee and their influence on the quality of finance reporting.This theoretical analysis points out that,audit committee standardizes management's conducts by taking its responsibilities which are supervising process of making the financial reports, controlling financial information;it improves the quality of financial reporting and perfects the corporate governance structure by communicating with management,internal audit department and certificated public accountant.Secondly,this paper empirically examines the establishment and characteristics of audit committee and their influence on the quality of financial reporting using the relevant data from Chinese listed corporations,uses earnings management degree and audit opinion as substitute variables of the financial reporting quality. The result indicates that audit committee does improve the quality of fmancial reporting and to a certain extent the audit committee characteristics,such as independence,professional ability,authority and size,have a positive effect on the quality of financial information.It means that audit committee system in China has indeed taken certain responsibilities as it is expected by the government,but its active function is not yet brought into play completely. Finally,this paper proposes some policy recommendations,in order to improve the effectiveness of Chinese audit committee system.