Chinese Operations of Audit Committee and Supervisory Board

Authors

  • paochen lee accounting department / kainan university

DOI:

https://doi.org/10.14738/abr.11.5888

Keywords:

Audit Committee, Supervisory Board, Corporate Governance

Abstract

Imposing the mechanism of a single audit committee (AC) on the dual supervisory mechanism of a Board of Directors alongside a supervisory board (SB) has raised questions regarding the problems in implementing effective monitoring. How the SB and the AC operated in a Chinese listed company is documented in this article by interviewing the secretary of BoD; the SB chairmen and an AC member. The issues rose in the interview point out the problems and evidences presented provide useful guidelines of how key characteristics of effectiveness and co-ordination can be improved to make supervisory functions in China more effective.

References

References

Abbott, L. J., Parker, S., & Peters, G. F. (2000, November). The effectiveness of Blue Ribbon Committee recommendations in mitigating financial misstatements: An empirical study (Working paper). Memphis, TN: University of Memphis.

Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69-87.

Abbott, L. J., Parker, S., Peters, G. F., & Rama, D. V. (2007). Corporate governance, audit quality, and the Sarbanes-Oxley Act: Evidence from internal audit outsourcing. The Accounting Review, 82, 803-835.

Agoglia, C. P., Doupnik, T. S., & Tsakumi, G. T. (2011). Principles-based versus rules-based accounting standards: The influence of standard precision and audit committee strength on financial reporting decisions. The Accounting Review, 86, 747-767.

Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71, 443-465.

Bédard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice & Theory, 23(2), 13-35.

Bezemer, P-J., Maasen, G., Vand den Bosch, F., Volberda, H. (2007), Investigating the Development of the Internal and External Service Tasks of Non–executive Directors: the case of the Netherland (1997-2005), Corporate Governance: An International Review, Vol. 15, No. 6, 1119-1129.

Bezemer, P., Peij, S.C., Maassen, G.F. and Van Halder, H. (2012) ‘The changing role of the supervisory board chairman: the case of the Netherlands (1997–2007)’, Journal of Management and Governance, Vol. 16, No. 1, pp.37–55.

Block, D., & Gerstner, A-M. (2016). One-Tier vs. Two-Tier Board Structure: A Comparison Between the United States and Germany. Comparative Corporate Governance and Financial Regulation. Paper 1. http://scholarship.law.upenn.edu/fisch_2016/1

Braiotta, L. J. (1999). The audit committee handbook (4th ed.), New York, NY: Wiley.

Brown-Liburd, H. L., & Wright, A. M. (2011). The effect of past client relationship and strength of the audit committee on auditor negotiations. Auditing: A Journal of Practice & Theory, 30(4), 51-69.

Caskey, J., Nagar, V., & Petacchi, P. (2010). Reporting bias with an audit committee. The Accounting Review, 85, 447-481.

Chang, S. L. (2001). Exploration the system of establishing audit committee for the Chinese listing corporations. Modern Finance and Economics, 142: 21(12).

Chen, X., & Zhou, N. (2009). Audit committee effectiveness: Evidence from a government inspection in China (Working paper). Binghamton, NY: Binghamton University, SUNY.

Chen, Y. L. (2007). The legal system of corporate governance [公司治理法制-公司內部機關組織職權論]. Taipei, Taiwan:台灣財產法暨經濟法協會出版.

Chien, W.-W., Mayer, R. W., & Sennetti, J. T. (2010). Audit committee effects in the largest US public hospitals: An empirical study. Accounting & Taxation, 2(1), 107-127.

China Center for Economic Research. (n.d.). Chinese Center for conomic Research. Available from http://www.sinofin.net China Securities Regulatory Commission. (2001).

Chhaochharia, V. and Grinstein, Y. (2007) ‘The changing structure of US corporate boards: 1997–2003’, Corporate Governance: An International Review, Vol. 15, No. 6, pp.1215–1223.

Guidelines on independent directors in listed firms. Beijing: Author. China Securities Regulatory Commission. (2006). Guidelines on independent directors in listed firms. Beijing: Author.

China Securities Regulatory Commission & State Economic and Trade Commission. (2002). Code of Corporate Governance for Listed Companies in China ୖᕷබྖ἞⌮෸๎ , Zhengjianfa ([2002] No. 1, promulgated 2002-01-07, enacted 2002-01-07). Beijing: Author. Retrieved from http://www.ecgi. org/codes/documents/code_en.pdf

Cohen, D. A., Dey, A., & Lys, T. (2005). Trends in earnings management in the pre- and post-Sarbanes Oxley periods (Working paper). New York: New York University. Collier, P. (1996). The rise of the audit committee in UK quoted companies: A curious phenomenon? Accounting, Business and Financial History, 6, 121-140.

Daily, C.M., Dalton, D.R. and Cannella, A.A. (2003) ‘Corporate governance: decades of dialogue and data’, Academy of Management Review, Vol. 28, No. 3, pp.371–382.

DeZoort, F. T., & Salterio, S. E. (2001). The effects of corporate governance experience and financial reporting and audit knowledge on audit committee directors’ judgements. Auditing: A Journal of Practice & Theory, 20, 31-48.

Ding, S., Wu, Z., Li, Y., & Jia, C. (2010). Executive compensation, supervisory board, and China’s governance reform: A legal approach perspective. Review of Quantitative Finance and Accounting, 35, 445-471.

Eisenberg, T., Sundgren, S., & Martin, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35-54.

Financial Reporting Council. (2008). The combined code on corporate governance. London, England: Author. Retrieved from http://www.frc.org.uk/documents/pagemanager/frc/Combined_Code_ June_2008/Combined%20Code%20Web%20Optimized%20June%202008(2).pdf[AQ: 9]

Financial Reporting Council. (2010). The UK Corporate Governance Code. London, England: Author. Available from http://www.frc.org.uk/documents/pagemanager/Corporate_Governance/UK%20 Corp%20Gov%20Code%20June%202010.pdf.

Financial Reporting Council. (2016). UK, Guidance on Audit Committee, Final Draft. (set the UK Corporate Governance and Stewardship Codes as well as UK standards of accounting, auditing and actuarial work.)

Finegold, D., Benson, G.S. and Hecht, D. (2007) ‘Corporate boards and company performance: review of research in light of recent reforms’, Corporate Governance: An International Review, Vol. 15, No. 5, pp.865–878.

Firth, M., Fung, P. M., & Rui, O. M. (2007). Ownership, two-tier board structure, and the informativeness of earnings—Evidence from China. Journal of Accounting and Public Policy, 26, 463-496.

Gendron, Y., Bédard, J., & Gosselin, M. (2004). Getting inside the black box: A field study of practices in “effective” audit committees. Auditing: A Journal of Practice & Theory, 23(1), 153-171.

Goodwin-Stewart, J., & Kent, P. (2006). Relation between external audit fees, audit committee characteristics and internal audit. Accounting & Finance, 46, 387-404.

Gorton, G., & Schmid, F. A. (2004). Capital, labor, and the firm: A study of German codetermination. Journal of the European Economic Association, 2, 863-905.

Ika, S. R., & Ghazali, N. A. M. (2012). Audit committee effects and timeliness of reporting: Indonesian evidence. Managerial Auditing Journal, 27, 403-424.

Iyer, V. M., Bamber, E. M., & Griffin, J. (2013). Characteristics of audit committee financial experts: An empirical study. Managerial Auditing Journal, 28, 65-78.

Klein, A. (2002a). Audit committee, board of director characteristics, and earnings management. Journal of Accounting & Economics, 33, 375-400.

Klein, A. (2002b). Economic determinants of audit committee independent. The Accounting Review, 77, 435-452.

Krishnan, J. (2005). Audit committee quality and internal control: An empirical analysis. The Accounting Review, 80, 649-675.

Krishnan, J., Wen, Y., & Zhao, W. (2011). Legal expertise on corporate audit committees and financial reporting quality. The Accounting Review, 86, 2099-2130.

Li, B., & Chen, L.-y. (2006). Research on effectiveness of audit committees in Chinese listed companies— Evidence from patches on annual reports. Journal of Corporate Finance, 9, 295-316.

Li, K., & Liu, H. (2005). Actuality and improvement of the Audit Committee of Listed Company. Journal of Zhengzhou Institute of Aeronautical Industry Management—Social Science Edition 24(2), 121-122.

Li, X.-q. (2007). The influence of corporate governance structure upon internal control. Commercial Research, 357, 91-92.

Lin, Z. (2004). A grounded theory exposition of the role of the supervisory board in China. British Journal of Management, 15, 39-55.

Magilke, M. J., Brian, W. M., & Pike, J. E. (2009). Are independent audit committee members objective? Experimental evidence. The Accounting Review, 84, 1959-1981.

McMullen, D. A., & Raghunandan, K. (1996, August). Enhancing audit committee effectiveness. Journal of Accountancy, 182(2), 79-82.

Miles, M. B., & Huberman, A. M. (1994). Qualitative data analysis: An expanded sourcebook (2nd ed.). Thousand Oaks, CA: SAGE.

Naiker, V., & Sharma, D. S. (2009). Former audit partners on the audit committee and internal control deficiencies. The Accounting Review, 84, 559-587.

National People’s Congress. (2006). Company law of the People’s Republic of China 中華人民共和國公司法 (Promulgated on 30 October 2005, Enacted on 1 January 2006). Retrieved from http://www. acga-asia.org/public/files/China_Company_Law_Amended_Oct2005.pdf Organisation for Economic Co-Operation and Development. (1999).

OECD’s definition is consistent with the one presented by Cadbury. Available from www.encycogov.com Organisation for Economic Co-Operation and Development. (2004).

OECD principles of corporate governance. Retrieved from www.oecd.org/department Qin, B. (2007). The influence of audit committee financial expertise on earnings quality: U.S. evidence. The ICFAI Journal of Audit Practice, 4(3), 8-28. Retrieved from http://ssrn.com/abstract=799645

Rubin, H. J., & Rubin, I. S. (1995). Qualitative interviewing: The art of hearing data (1st ed.). Thousand Oaks, CA: SAGE.

Shanghai Stock Exchange. (2000). Shanghai Stock Exchange guidelines for corporate governance of listed companies, promulgated 2000-12-02. Shanghai, China: Author. Retrieved from http://wenku.baidu.com/view/e09670bcc77da26925c5b051.html

Ramli, F., Nawawi A. and Ameer, R. (2010) ‘Director Independence and performance of listed companies: evidence from Malaysia’, International Journal of Business Governance and Ethics, Vol. 5, No. 4, pp.280–300.

Sarbanes–Oxley Act. (2002). The Public Company Accounting Reform and Investor Protection Act. Available from http://www.soxlaw.com/

Valenti, A. (2008) ‘The Sarbanes-Oxley Act of 2002: has it brought about changes in the boards of large US corporations?’, Journal of Business Ethics, Vol. 81, No. 2, pp.401–412.

Xie, B., Davidson, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9, 295-316.

Yang, M. H. (2004). Enterprises and law—The research of supervisory system of corporate governance [企業與法律-公司治理之監事研究]. Taipei, Taiwan: Chung-Hwa Corporate Governance Association [財團法人公司治理協會].

Yermark, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185-211.

Downloads

Additional Files

Published

2019-01-29

How to Cite

lee, paochen. (2019). Chinese Operations of Audit Committee and Supervisory Board. Archives of Business Research, 7(1), 245–263. https://doi.org/10.14738/abr.11.5888