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CFA Level I · CFA Level I Exam · Financial Reporting Quality

A company's audit committee is composed mostly of non-executive directors who have no business relationship with the firm, and it meets privately with the external auditor without management present. This arrangement is most likely intended to:

The arrangement is meant to strengthen the auditor's independence from management pressure. An independent audit committee that meets privately with the auditor provides an unfiltered channel to raise concerns about accounting judgments, supporting oversight of financial reporting quality rather than cutting audit costs or letting management pre-approve estimates.

  1. Areduce the cost of the annual audit by limiting the auditor's testing.
  2. Bstrengthen the auditor's independence from management pressure.Correct
  3. Callow management to approve the accounting estimates before audit review.

Explanation

Independent audit committee members and private sessions with the auditor give the auditor a channel free from management influence, strengthening independence and the monitoring of reporting. The other options describe objectives that would weaken oversight rather than support it.

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