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Give the disadvantages of the audit committee

      

Give the disadvantages of the audit committee

  

Answers


Wilfred
•• It leads to fear that its purpose is to catch the management out and by so doing,
cause divisions in the board. All directors are equal and some should not be seen as
supervising others. However, the audit committee acts on behalf of the main group of
directors and reports to it.
•• Non executive directors may be overburdened with detail and may get into management
responsibilities and possibly cause conflict. There is a thin line between management
and supervision.
•• Audit committees are ineffective and powerless as they cannot enforce their
recommendations or report directly to shareholders.
•• Appointment of non executive directors is heavily influenced by the executive hence
‘yes men’ may be appointed.
•• Audit committee incurs time and costs unless it is justified that the benefits outweigh
costs.
•• The committee may encourage prudence and risk aversion which can hamper initiative
and executive flair.
•• Non executive directors may lack the technical skills and the know-how and in turn be
rendered incompetent.
•• The first auditors of a company may be appointed by the directors at any time before
the annual general meeting, and the auditors so appointed shall hold office until the
conclusion of that meeting.
•• A person or firm shall not be qualified for appointment as auditor of a company unless he
or, in the case of a firm, every partner in the firm is the holder of a practicing certificate
issued pursuant to s.21 of the Accounts Act
•• An auditor may resign from office as long as a notice in writing to that effect is deposited
at the company’s registered office.
•• The auditor and the client should agree on the terms of the engagement. The agreed
terms should be recorded in an audit engagement letter or other suitable form of
contract.
•• The auditor gives credibility to financial statements and to do this he must be credible
himself.
Wilfykil answered the question on April 11, 2019 at 09:49


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