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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

Which of the following is the main reason a listed company's audit committee is normally made up mainly of independent non-executive directors?

Audit committees are made up mainly of independent non-executive directors so that they can give an objective review of financial reporting, internal controls and the external audit without being influenced by the executive management whose work they are overseeing.

  1. ATo allow the executive directors to approve their own remuneration
  2. BTo provide an objective review of financial reporting and the external audit, free from management influenceCorrect
  3. CTo remove the need for an external audit of the financial statements
  4. DTo give the finance director control over the appointment of the auditor

Explanation

An audit committee reviews the integrity of financial statements, internal controls and the external auditor relationship. Independence from executive management makes this review objective. It does not replace the external audit, and allowing executives to control matters such as pay or auditor appointment would defeat its purpose.

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