Superior Governance Without Audit Committees
ICFAI University Working Paper
9 Pages Posted: 9 Nov 2004
Audit committees have not worked and cannot be relied upon to protect investors unless they become a separate board elected by investors on a democratic rather than a plutocratic basis. A separate "watchdog" board elected by minority investors provides superior protection for investors. It also reduces board costs while protecting the reputation and integrity of directors and any dominant shareholder, reduces the need for prescriptive stock exchange rules on board composition and structure or prescriptive legislation on audit processes.
This article reviews the origins of audit committees and how they are now expected to carry out functions for which they were not designed. The reasons why a board audit sub-committee have not and cannot work are considered. The use of separated elected officers to carry out the functions of an audit committee in various non-Anglophone countries is reviewed. Detailed consideration of a form developed by the author in Australia is provided with a variant proposed in the Australian Parliament.
Keywords: Audit committee, corporate governance, watchdog board
JEL Classification: G34, G38, K22, L22, M42
Suggested Citation: Suggested Citation