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CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

A company's audit committee includes the chief financial officer, who is also an executive director. This arrangement most likely:

This arrangement most likely compromises the committee's independence. The audit committee exists to provide objective oversight of financial reporting and controls, and the CFO would be reviewing their own work. The CFO can inform the committee by attending without being a member.

  1. Aimproves the committee's access to detailed financial information without any cost to oversight
  2. Bcompromises the committee's independence in overseeing financial reporting and internal controlsCorrect
  3. Csatisfies best practice because the CFO has the greatest knowledge of the accounts

Explanation

The audit committee should consist of independent, non-executive directors to oversee management's reporting objectively. The CFO would be reviewing their own work, which creates a conflict. Their knowledge can be provided by attending meetings without membership.

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