Audit committees play an important role in promoting independence of both internal and external auditors.Which of the following is the most important limitation on the effectiveness of audit committees?
A)Audit committees may have close personal and professional friendships with management.
B)Audit committee members are compensated by the PCAOB.
C)Audit committees devote their efforts to external audit concerns and do not pay much attention to internal auditing.
D)Audit committee members are required to have degrees in non-accounting fields.

Question

Quizplus · Accepted Answer

Close personal and professional friendships with management can compromise the independence of audit committees, which in turn limits their effectiveness in promoting independence of both internal and external auditors. This is because audit committees may feel hesitant to challenge management's financial reporting decisions or the work of the auditors if they have close relationships with them. The other options are not significant limitations on the effectiveness of audit committees.

Audit Committees Play an Important Role in Promoting Independence of Both