Critically appreciate the understanding of audit evidence $($Legal vs Scientific$)$; types of audit evidence; audit documentation and analytical evaluation

Luxury motor vehicles are manufactured and designed by Fiat Ltd$.$ The company employs $2,500$ staff and consistently makes a net profit of between $15\%$ and $20\%$ of sales. Fiat Ltd is a private company and not listed on the stock exchange; its shares are held by $15$ individuals, most of them from the same family. The maximum shareholding is $15\%$ of the share capital.

The executive directors are drawn mainly from the shareholders. There are no non$-$executive directors because the company legislation in Fiat Ltd jurisdiction does not require any. The executive directors are very successful in running Fiat Ltd $,$ partly from their training in production and management techniques, and partly from their $$hands$-$on$$ approach providing motivation to employees.

The board are considering a significant expansion of the company. However, the company$$s bankers are concerned with the standard of financial reporting as the financial director $($FD$)$ has recently left Fiat Ltd The board are delaying provision of additional financial information until a new FD is appointed.

Fiat Ltd does have an internal audit department, although the chief internal auditor frequently comments that the board of Fiat Ltd do not understand his reports or provide sufficient support for his department or the internal control systems within Fiat Ltd$.$

The board of Fiat Ltd concur with this view. Anderson & Co$,$ the external auditors have also expressed concern in this area and the fact that the internal audit department focuses work on control systems, not financial reporting. Anderson & Co are appointed by and report to the board of Fiat Ltd

The board of Fiat Ltd are considering a proposal from the chief internal auditor to establish an audit committee.

The committee would consist of one executive director, the chief internal auditor as well as three new appointees.

One appointee would have a non$-$executive seat on the board of directors.

Required:

Discuss the benefits to Fiat Ltd of forming an audit committee.