1.0 Background to the Study
The purpose of financial reports is to deliver reliable financial information that guarantees performance. Corporate governance practices of a firm that is handy for investors and creditors to make investment decisions. The primary roles of the audit committee includes overseeing the financial reporting process and to monitor the management as a result of conflict of interest between management and shareholders with the former’s intention to manipulate figures for their own interest. Accordingly, external auditors play the role of giving independent opinions on financial statements of firms; if the financial statements are prepared with due care in order to avoid any material bias or misstatements. Hence, audit committee and external auditors play significant role in ascertaining the validity, acceptability and reliability of financial statements.
However, due to collapse of corporate skyscrapers for instance, firms such as Enron, WorldCom and Satyam, effectiveness of audit committee and external auditors have been questioned by regulators in ensuring that financial statements are fairly stated to reduce ineffectiveness. Helen and Arnold (2011) asserted that the audit committee can play a significant role in overseeing the audit process and helping to mediate disputes between board and the auditor.