Brief Introduction

One mechanism that has been widely used in worldwide organizations to monitor the financial reporting process is the establishment of an audit committee comprising a majority of independent directors. The existence of an audit committee could improve the monitoring of financial reporting and internal control. This could be done by bridging the communication gap between the auditors and management and through strengthening the role of the internal auditors.

Although audit committees have been in existence for decades, there are criticisms of the practices of audit committees, and a large amount of research has been undertaken to identify an ideal audit committee that would act in the interest of shareholders (Abbott and Parker, 2000; Krishnan, 2005).

Audit committees serve as a bridge in the communication network between internal and external auditors and the board of directors, and their activities include a review of nominated auditors, the overall scope of the audit, results of the audit, internal financial controls, and financial information for publication (FCCG, 1999). Indeed, the existence of an audit committee in a company would provide critical oversight of the company’s financial reporting and auditing processes (FCCG, 1999; Walker, 2004).