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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Anita Foods Ltd, a listed company, finds that its audit committee is chaired by the CFO, who also prepares the financial statements the committee reviews. Which governance principle is most directly compromised?

The independence of the committee from management is compromised. An audit committee exists to oversee financial reporting objectively, but a CFO who prepares the statements and also chairs the committee would be reviewing his own work, creating a conflict that weakens oversight.

  1. AIndependence of the committee from the management it overseesCorrect
  2. BTransparency of the dividend policy
  3. CRight of shareholders to inspect registers
  4. DRotation of statutory auditors

Explanation

An audit committee is meant to oversee financial reporting independently of management. A CFO chairing it would review his own work, creating a self-review conflict. The other options are unrelated to the facts.

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