A Study Of The Effectiveness Of China's Listed Company's Audit Committee System

Many normative and theoretical analyses show that audit committee will help to improve the quality of accounting information. Since the year 2002, some listed companies voluntarily set up audit committees with the guidance of CSRC and the relevant departments. However, in China's particular circumstances, it is still a question whether audit committee can really improve the quality of accounting information of listed companies and it needs to be answered by empirical evidence. This paper studies the effectiveness of audit committee through the relationship between the value relevance of the accounting earnings and audit committee. The results show that 1. After the enactment of "Corporate Governance Guidelines", the companies with audit committees witness better credibility of accounting earnings than those without audit committees in year 2002, 2003 and 2004. Meanwhile, in year 2001, the former have already had better credibility of accounting earnings than the latter. 2. For those companies with audit committees, there are no significant differences in the credibility of accounting earnings before and after their establishment of audit committees. 3. The companies with higher earnings quality tend to establish audit committees. Based on the above-mentioned findings, we believe that there exist self-selection in the course of establishing audit committee and China's audit committee has not really played its original role in improving the corporate governance and the quality of accounting information, which should be attributed to the inherent defects of China's audit committee. In the end, this paper provides some policy recommendations.