Authority Positioning and the Function Implementation of the Audit Committee of the Board of Directors under the Comparative Law Framework

Due to the long-standing ineffectiveness of the supervisory board in China’s corporate governance, companies now face an opportunity for significant transformation in their governance structures. The newly revised Company Law of People’s Republic of China provides for the adoption of a single-tier governance model. As per the model, a board of directors and an audit committee are established, but a supervisory board is not included. In terms of authority, the audit committee fully assumes the functions previously held by the supervisory board while strengthening financial oversight. Its organizational structure is designed to be autonomous and flexible, meeting the needs of companies’ self-directed development. Regarding the selection mechanism, the meeting-based selection model of sharehololers is deemed the most reasonable, ensuring the independence and effectiveness of the audit committee. In terms of power allocation, the committee, in addition to traditional authorities, should also focus on core functions such as auditing, internal control, and risk management to ensure the effective implementation of its powers. In relation to personnel composition, it is recommended to design the composition of committee seats based on actual needs. This recommendation takes into account the distinction between executive and non-executive directors, given the need to ensure the independence of the audit committee. To achieve a balance of rights and responsibilities, the audit committee should include its members within the scope of fiduciary. This measure helps safeguard the overall transparency and accountability of corporate governance.