Proceedings

shareholders as companies’ owners and also towards other interested parties. In
literature there are a number of studies that place financial information in its real
context, marked by constraints and imperfections. Seen as a typical information
system, accounting differs from other information systems on three levels: “by the
specificity of the principles supporting the profession; by the specificity of processed
data and by the specificity of processing methods” (Grenier, 2000: 1122). Therefore,
Grenier and Bonnebouche are the promoters of a scheme including accounting
principles in the representation process. “These principles interpose between the
reality to be represented and the observer (at the level of observation principles –
prudence, quantification), between the reality and the information’s user (at the level
of principles concerning representation’s construction), or between the user and the
observer (at the level of deontological principles – sincerity, regularity)” (Grenier,
2000: 1123). Listed companies from modern economy surpass the legal reporting
duties and develop a true “financial communication strategy” (Guimard, 1997: 342).
Fraudulent financial statements represent a threat for users’ trust. Those statements
have captured the attention of business community, accounting professionals,
academic environment and also of regulators. At present, we could notice the
necessity to prevent financial frauds and to detect those strategies able to keep away
this type of incidents. Fraud risk could be reduced by combining detection and
prevention measures. Michael R. Young (2003) who has spent almost twenty years
defending accounting firms accused of fraud recognizes that the introduction of the
Sarbanes-Oxley Act could be useful. Experience proves us that violation of laws and
regulations is, in general, the result of deficiencies within corporate governance and
internal control. Independence and financial sophistication of members are regarded
as challenges for audit committees. Therefore, in order to get a future success, audit
committees should ensure that the organization has determined initially a viable audit
function.
However, audit committees’ presence in the bosom of companies aims to prevent the
production and transmission of fraudulent financial statements. Audit committee is
held to make sure that financial statements are not the result of accounting errors or
frauds. Some authors have studied the usefulness of an audit committee in preventing
frauds. Audit committee could play a significant role in preventing, detecting and
investigating frauds. As long as we are talking about prevention, the main aspect for
audit committees in preventing frauds consists in observing management and external
auditors’ expectations. In addition, it is necessary for an audit committee to manifest
zero tolerance when it detects errors; audit committee should take seriously into
account any attempt to defraud, to investigate it subsequently and to act accordingly
to the importance of the event.
Two empirical studies validate the audit committee usefulness (McMullen, 1996;
Uzun et al., 2004) and other two deny this usefulness (Beasley, 1996; Carcello &
Nagy, 2004). McMullen (1996) detects a significant negative relation between the
presence of an audit committee and fraud. The lack of reliability regarding financial
information has less severe consequences. However, not the same thing occurs when
correcting accounting results. Firms with audit committees are associated with fewer
shareholder lawsuits alleging fraud, fewer quarterly earnings restatements, fewer SEC
(Security Exchange Commission) enforcement actions, fewer illegal acts and fewer
instances of auditor turnover when there is an auditor-client accounting disagreement
(McMullen, 1996). Research studies follow various types of measures when they
~ 21 ~