Core Viewpoint - The new Company Law mandates that listed companies establish an audit committee to perform the duties of the supervisory board, reflecting the high trust placed by legislators and regulators in audit committees. However, the existing challenges faced by audit committees from 2002 to 2023 remain unresolved, potentially leading to a failure in fulfilling supervisory responsibilities [1][2]. Group 1: Audit Committee Challenges - Audit committees are appointed by the board of directors, which compromises their independence as they are tasked with supervising the board while being accountable to it. This creates a situation where the board effectively supervises itself [1][2]. - The actual performance of independent directors in China falls short of expectations, further limiting the effectiveness of audit committees [1][3]. Group 2: Legislative Intent and Implementation Issues - The new Company Law aims to streamline corporate governance by allowing audit committees to take on supervisory board responsibilities, based on the belief that they can provide better oversight. However, the law does not adequately address the inherent challenges faced by audit committees, making the legislative intent difficult to achieve [2][3]. - The lack of clarity in whether audit committees should be appointed by the shareholders' meeting or the board of directors means that existing audit committees are likely to continue in their current form, merely expanding their responsibilities without changing the underlying appointment mechanism [2][3]. Group 3: Recommendations for Improvement - To enhance the effectiveness of audit committees, it is recommended that they be appointed by the shareholders' meeting, making them accountable to shareholders rather than the board. This change would help audit committees operate independently [3][4]. - Strengthening the role of independent directors is crucial. Recommendations include increasing their on-site participation from at least 15 days per year to at least 4 days per quarter, ensuring they are well-informed about the company's operations [4]. - It is suggested that at least one full-time independent director be included in the audit committee to ensure dedicated oversight and deeper understanding of the company [4]. - Adjusting the compensation and liability mechanisms for independent directors could incentivize active participation and mitigate concerns about their responsibilities [4].