Internal organization of audit committees in the entities listed on stock exchange.

AuthorFulop, Melinda Timea
  1. INTRODUCTION

    In Turnbull Report (1999) we can find some specifications regarding the internal audit, specifications that recommend a greater support for internal audit and provide an emphasis in this area. The recommendations of Turnbull Report (1999) can be found in paragraphs no 42-47.

    According to Cadbury Code's definition the "corporate governance" or "corporate management" is the system whereby a company is managed and controlled. It is important the way a company is managed and organized and the way the entity's control is implemented.

    Managers have a very important role in the way the corporate governance is organised. They are those who establish the direct functions of the audit committees. Setting tasks is closely related to size, complexity and even risks to which the entity is exposed. Among the basic functions we can mention:

    * the monitoring and supervision of the annual reports;

    * the monitoring and evaluation of the internal control and the risk of management;

    * the monitoring and evaluation of the internal and external auditing.

  2. METHODOLOGY

    We proposed to make a connection between accounting and auditing. To receive relevant results and conclusions in the economic research, we must consider, more often, facts, economic events, figures and statistics. Given the objectives proposed in the research, we decided to tackle the problem from a deductive to a particular stage. To achieve our objective we have started from the current state of knowledge which represents the basis for our future research.

    After studying the literature, we decided to collect data for our case study from the Frankfurt Stock Exchange. The information collected were analyzed with the statistic program SPSS 16.

  3. CASE STUDY

    In order to emphasize the role of the audit committees, we want to achieve a case study on the way the audit committees are organized. The organization and composition of the audit committees can directly influence the market value of the entity. Moreover, a very well organized audit committee with a properly chosen composition can reach efficient corporate governance. Therefore, it must be paid more attention to the audit committee and to its members. As Bertschinger and Schaad (2003, p. 23) mentioned the ideal number of members in an audit committee should be of four members. One of those four members of the audit committee acts as the Chairman of the audit committee, the one who must have the best knowledge in auditing, control system and also must have experience in this field. Also, it is very important that one member of the audit committees should be a financial expert or accounting expert in order to provide a better analysis of the financial situations within the entity. The independence of the members is a basic requirement in the work they carry because they have to be objective. For our analysis we took into consideration the public annual reports posted on the Frankfurt Stock Exchange for the years 2006, 2007 and 2008. To...

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