The Research Of Audit Committee's Governance Over Accounting Information Disclosure Of Chinese Listed Companies

The audit committee is a professional committee subordinated to the board of directors.Its function is to improve the quality of financial information of the company by monitoring and communicating with the internal and external audit,examining the effectiveness and efficiency of internal control,supervising and restraining the management.The audit committee has gone through decades of development overseas and has become an important institutional arrangement to strengthen corporate governance and improve the quality of financial disclosure.In China,guidelines of governance for listed companies were promulgated in 2002.It was the first official norms related to the audit committee,which symbolized the formal introduction of this arrangement.The audit committee develops constantly with the development of the capital market.Until now,this arrangement is in the state of continuous improvement and standardization.Since the audit committee is relatively new in our country,it has a series of shortcomings.As a result,its function to strengthen corporate governance and improve financial disclosure has not been fully exerted.This paper,taking Wuliangye Corporation as an example,discusses the problem of its audit committee in governing financial disclosure and come up with a series of solutions.Wuliangye's defects in financial disclosure exist in other listed companies as well,which arouses social attention.Therefore,it is a problem worth discussing and learns from.The main problems of Wuliangye's financial disclosure are as follows: failed to disclose significant security investment and a mass loss of claims,failed to disclose significant loss from security investment and a major error in the income from previous years.From the perspective of audit committee's function on financial disclosure,it has failed to perform its duties in supervising internal control,restricting self-interest behavior of management,selecting and monitoring external auditors and examining financial information and its disclosure.Leading to the audit committee's failure to perform its duties lies in the following reasons.First of all,not enough importance was attached to the audit committee.Although Wuliangye has drawn up rules for the audit committee since its establishment in 2008,the rules didn't have precise lines about audit committee.At the same time,the audit committee's work was not supported by sufficient resource.Secondly,the governance structure of the corporate was not conducive to the function of the audit committee.Wuliangye is a state-owned company,Yi Bin State-owned Assets Management Corporation has been the controlling shareholder for many years,the phenomenon of dominance exists in the company,so the deprivation effect for smaller shareholders was significant.In addition,the members of board and management are highly overlapping,which made two levels of different interests almost the same and inhibited the function of the audit committee.So self-interest behaviors of management cannot be effectively controlled.Thirdly,the audit committee lacked the ability to monitor the functioning of internal control.This is due to the limited size of the committee,defects in the competence of members and the designation of members was directly held by controlling shareholder.Finally,the audit committee was unable to select and supervise external auditors independently because of the intervention of management,low diligence of audit committee members and external auditors' intimate relation with the management level.In view of the problems of the audit committee's governance over financial disclosure,the solutions are put forward as follows.In the first place,the company should pay much more attention to the arrangement which means the audit committee's duty and right should be cleared in the Memorandum of Association and adequate resource to perform its duty is urgently needed.In the second place,a governance structure that is conducive to the function of audit committee needs to be established.Considering controlling shareholder's dominant place,it is suggested to reduce its share proportion and encourage external shareholders to blend in to achieve the decentralization and diversification of the share.Moreover,the cross-serving between board and management members should be reduced.In the third place,enhance audit committee's effectiveness in supervising the operation of internal control.Wuliangye can firstly add members to the committee considering its limited size and the univocal background of members.Then,sharpen the professional competence of the member by training and assessing on a regular basis,to update the body of knowledge of them.Additionally,changes in the procession of the selection of the audit committee should be made.Lastly,make clear of audit committee's right to select and supervise external auditors.The audit committee must be endowed with the right to select external auditors,to decide audit fee and to evaluate audit report independently.Due to the low diligence of committee's member,Wuliangye could take measures to enhance the communication by working out rules or linking remuneration with diligence.The external auditors,on the other hand,should make report to the audit committee about its work and lessen passive impact from the management members.