(a) (i) The composition of the Audit Committee
(1) The audit committee should comprise at least a minimum number of (three) directors, the majority of whom should be non-executive and independent.
(2) The membership of the audit committees should ideally comprise directors with adequate knowledge of finance, accounts and the basic element of the laws under which the corporate body operates or is subject to.
(3) The chairman of the committee should be a non-executive director.
(4) The managing director/chief executive officer, the finance director, the head of internal audit and a representative of the external auditors should ordinarily be invited to attend audit committee meetings.

(ii) Functions of the Audit Committee
The primary functions of the audit committee will be to:
(1) Recommend the appointment of the external auditors of the corporate body.
(2) Liaise with the external auditors for the purposes of maintaining and ensuring audit quality, effectiveness, risk assessment, interaction with internal auditors and dealing with situations governing the resignation of the external auditors.
(3) Review with the auditors their report on the financial statements of the corporate body.
(4) Review the adequacy of systems and internal controls and of the degree of compliance with material policies, laws and the code of ethics and business practices of the corporate body.

(b) Five symptoms of poor corporate governance
(1) Domination by a single individual
A feature of many corporate governance scandals has been boards dominated by a single senior executive with other board members merely acting as a rubber stamp. Sometimes the single individual may bypass the board to action his own interests. This can result in management and directors awarding themselves remuneration and company perks that do not align with company performance or shareholder interests. This is an inherent problem in agency theory. Even if an organisation is not dominated by a single individual, there may be other weaknesses. The organization may be run by a small group centered around the Chief Executive and Chief Financial Officer and appointments may be made by personal recommendation rather than a formal, objective process.

(2) Lack of involvement of board
Boards that meet irregularly or fail to consider systematically the organization’s activities and risks are clearly weak. Sometimes the failure to carry out proper oversight is due to lack of information being provided.

(3) Lack of adequate control function
Another potential weakness is a lack of adequate technical knowledge in key roles, for example in the audit committee or in senior compliance positions. A rapid turnover of staff involved in accounting or control may suggest inadequate resources and will make control more difficult because of lack of continuity.

(4) Lack of supervision
Employees who are not properly supervised can create large losses for the organization through their own incompetence, negligence, or fraudulent activity. The behavior of an employee who caused the collapse of a major bank was not challenged because he appeared to be successful, whereas he was using unauthorized accounts to cover up his large trading losses. He was able to do this because he was in charge of dealing and settlement, a systems weakness of lack of segregation of key roles that featured in other financial frauds.

(5) Lack of independent scrutiny
External auditors may not carry out the necessary questioning of senior management because of fears of losing the audit, and internal audit does not ask awkward questions because the Chief Financial Officer determines their employment prospects. Often corporate collapses are followed by criticisms of external auditors, such as in a case where poorly planned and focused audit work failed to identify illegal use of client monies.