One way of getting accounting expertise onto audit committees is to recruit ex-audit firm partners and/or employees onto the board of directors. However, appointing former audit firm partners to boards and audit committees raises independence concerns, and the Corporations Act requires that a retired partner must not take on a senior role at ah audit client's firm for one year after retiring.
Naiker and Sharma provide evidence that financial statements are of higher quality when former audit partners are on the audit committee, and raise doubts about the benefits of a rule limiting their recruitment.
Required
(a) What are the arguments for and against allowing former audit firm partners and/or employees to join audit committees?
(b) Explain how these accounting experts could help or hinder the audit process and thereby have an impact on the quality of a company's internal controls and financial statements.