<P> One area of concern is whether the auditing firm acts as both the independent auditor and management consultant to the firm they are auditing . This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management . The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor . Changes enacted in the United States in the form of the Sarbanes - Oxley Act (following numerous corporate scandals, culminating with the Enron scandal) prohibit accounting firms from providing both auditing and management consulting services . Similar provisions are in place under clause 49 of Standard Listing Agreement in India . </P> <Ul> <Li> Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting . </Li> <Li> Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder . The traditional answer to this problem is the efficient - market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors . </Li> <Li> Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors . Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance . This should, ideally, be corrected by the working of the external auditing process . </Li> </Ul> <Li> Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting . </Li> <Li> Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder . The traditional answer to this problem is the efficient - market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors . </Li>

Identify a true statement about the corporate governance committee of a company