Proceedings

intervention of audit committees in the increasing of financial information quality. For
this paper, I started from the unanimous need of capital markets to dispose of high
quality information. As a response to this need, regulators introduced the obligation
for listed companies to dispose of audit committees. The main role of these audit
committees consists in monitoring financial situations. Therefore, audit committees
should supervise the quality of the applied accounting principles and also the way by
which these principles affect financial situations. By the contribution of this paper, we
could appreciate that audit committee represents one of mechanisms controlling the
opportunistic behavior of managers, under the circumstances of the agency theory and
information asymmetry. From the empirical research studies, I found that the major
function of audit committees consists in reducing financial reporting risks.
The results of this fundamental research highlight some possible solutions by which
we could increase audit committee effectiveness in corporate governance and in
financial reporting. Audit committee effectiveness depends on the financial and extrafinancial
expertise of the members. At the same time, the members of audit
committees should be “champions” in ethics and they must prove independence,
competence, morality and professional reasoning. Audit committee’s characteristics
are crucial for preventing frauds and accounting errors. However, the results of this
research paper indicate the fact that a fully independent audit committee is not able to
eliminate the entire fraudulent financial reporting. Generalizing, we could consider
that the intention of the Sarbanes-Oxley Act or of a Blue Ribbon Committee Report
seems insufficient for preventing fraudulent behavior manifested by companies’
management. As a consequence, all the persons involved in corporate governance
should be more vigilant to the importance of financial information’s quality. Unlike
the employee fraud, management fraud is more difficult to be detected because of
managers’ manipulation attempts and because of their opportunistic behavior. The
internal control systems can not be made entirely responsible for managerial frauds.
Therefore, we could appreciate that we need independent audit committees
monitoring the integrity of financial reporting and ceasing managers’ manipulations.
In order to achieve this goal, the present paper proposes to the audit committees’
members to protect external auditors from the pressures exercised by managers. Audit
committees should possess real and sufficient information and should assume their
responsibility to fraud detection and prevention. However, this paper contains some
doubts linked to the ability of audit committees’ members to prevent all potential
frauds. This study sustains that the members of audit committees should cultivate
close relationships with the CEO and the CFO, with internal and external auditors in
order to solve the difficulties. In is imperative for the members to be informed of all
significant matters concerning financial reporting. Also, the frequency of audit
committee’s meetings could improve and intensify the control of financial reporting
process. Even the informal relations between the members of audit committees and
management could serve to maximize audit committee effectiveness. Agency problem
is and will be there as long as there are organizations based on corporate type. During
this study I observed that not only agency problem but also the failure of different
corporate governance instruments creates difficulties. An independent audit
committee is one of the most important mechanisms for minimizing these types of
problems. The establishment of an audit committee has a lot of value to different
types of users which could ensure the credibility of the financial information.
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