QUESTION 1 You are a partner in the firm of York & Yonge LLP Chartered Accountants. The Finance Director of one of your audit clients, The Allan Anderson Agribusiness Plc, has asked you to write a special report on the topic "The Importance of Audit Committees for Corporate Governance', so that he may discuss this at a Board meeting in three weeks. This assignment is not part of the usual statutory audit but the Finance Director is trying to inform his colleagues, in the senior management of the company, of the importance of the Audit Committee and the reasons for its composition in a listed company such as theirs. The Finance Director has also explained that the timing of the Board meeting is important as the company has been growing rapidly and is poised to enter the FTSE 250 however two of the non-executive directors who sit on the Audit Committee and who have been very valuable members of the Board have announced their plans to retire permanently in 6 months as they are now quite elderly. The Allan Anderson Agribusiness Plc will be looking for two new non-executive directors who can serve on the Audit Committee. Required: Prepare your report 'The Importance of Audit Committees for Corporate Governance' - this should include critical analysis of the following matters: a) What is the basis of Audit Committees in the UK for example, the OECD requirements and the UK Corporate Governance Code? (8 marks) b) In what ways might an audit committee make the external auditor's work more effective? (8 marks) c) What problems may arise in trying to ensure the independence of members of the audit committee? (6 marks) d) Explain the arguments for and against statutory regulation of the role of the audit committee rather than operating with voluntary codes of practice. (6 marks) (Total 28 marks)