Effectiveness of Audit Committee in the Private Sector

Outline of the Study

This study will be based on the topic “The Effectiveness of Audit Committee in Private Sector.” In the first chapter, the background of the research along with the purpose and significance of the research will be included. In the second chapter, a review of the related literature will be presented. The second chapter will also explain different concepts related to the topic. In the third, chapter, the practice will be discussed along with case studies. In the fourth chapter, application of theory to practice will be presented. Finally, the fifth chapter will conclude the study.

Background of the Study

Audit can be defined as the process of verifying systematic evidence of books and records that are developed through data. The development of books takes place under accounting principles. The accounting principles are accepted by specific programs in advance to express the fairness of financial reports to readers and users.

Audit committee plays a vital role in the effectiveness of an organization. The role of audit committee involves several responsibilities. The audit committee plays a broad and critical role in the effectiveness of an organization. The general role of the audit committee is to fulfill the gap between management and external auditors. The audit committee is also responsible for filling the gap between people and external auditors (Power, 1997, pp. 123).

In the current financial and economic environment, there is a need to ensure the efficiency and integrity of financial information. The process of auditing increases the confidence and credibility of financial statements. The external auditor plays a vital role in the efficiency of organisations (Petrosillo et al, 2012, pp. 263).

The rules governing private companies are different from those of public companies. However, the rules governing the private sector companies are different. The audit committees in the private sector companies are responsible for the management of critical tasks. They are also responsible for monitoring and performing oversight roles. In order to accomplish this task, private companies should imitate its counterparts. The benefits of an audit committee prevail over the cost required for monitoring and protecting the interests of stakeholders (Nadir, 2007).

Anglo-Saxon concept „corporate governance” means the system by which companies are directed and controlled. It is considered that the most judicious expression should be „big government enterprises”, because research and recommendations are, essentially, referring on this category of entities (Dumitrana et al., 2008: 34). In literature the concept of corporate governance includes elements of social responsibility, ethical business practices, issues referring to internal and external audit transparency, managers responsibility for the accuracy of information presented in financial reports or communication and full transparency on financial results. Credibility and transparency of financial information provided by the management of a company is strengthened by the independent audit role - an essential component of corporate governance - monitoring in behalf of the owners / shareholders of the company activities. Internal audit provides independent verification of work managers. Given that the contractual relationship between the owner ...