The Audit And Compensation Committees Essay

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This paper contributes to the auditing literature by investigating empirically auditors’ responses to overlapping membership on audit and compensation committees (overlapping committees) and the equity holdings by overlapping audit committee members. Boards of directors are at the helm of corporate governance and work through sub-committees (Adams, Hermalin, & Weisbach, 2010; Hermalin & Weisbach, 1998; Hermalin & Weisbach, 2003). Delegating different board functions to distinct committees represents a separation of tasks and functions, and has been strongly recommended as a suitable mechanism for improving corporate governance (Kesner, 1988; Spira & Bender, 2004). Two important sub-committees found in modern organisations are the audit and compensation committees. The audit committee is a subcommittee of the board of directors with delegated authority to oversee the auditing and financial reporting-related matters of the firm. The compensation committee, on the other hand, is entrusted with responsibility for setting managerial pay, including an optimal amount of performance-based incentive pay. The question of whether overlapping membership, where at least one audit committee member is also on the compensation committee, is desirable from a governance perspective has received increasing attention from professionals and researchers (Chandar, Chang, & Zheng, 2012; Habib & Bhuiyan, 2014; KPMG, 2008; Liao & Hsu, 2013). The rationale for overlapping membership is based on the
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