Audit Committee Performance Gaps and Corporate Governance Risk Mitigation Under China’s New Regulatory Regime: A Conceptual Framework

Abstract

Against the backdrop of strengthened corporate governance standards and regulatory oversight in China’s capital markets, audit committees play a critical role in supervising financial reporting, internal controls, risk management, and information disclosure. However, a gap often exists between their formal establishment and substantive governance performance. Drawing on agency theory and institutional theory, this study develops a conceptual framework linking audit committee performance gaps to corporate governance risks, risk mitigation mechanisms, and improved governance outcomes under China’s evolving regulatory context. The study identifies key gaps, including insufficient independence, inadequate professional expertise, formalistic operation, limited authority and information access, and weak engagement and accountability. These gaps may weaken monitoring effectiveness, increase information asymmetry and managerial opportunism, and consequently heighten financial reporting, internal control, disclosure, and compliance risks. To address these risks, the study proposes a risk mitigation plan centered on strengthening audit committee independence, professional competence, substantive engagement, authority, information access, and accountability. China’s evolving regulatory regime, characterized by stricter disclosure requirements and stronger enforcement, further supports these governance improvements. The framework therefore connects governance gaps with risk assessment and actionable responses, demonstrating how internal audit committee capabilities and external regulatory pressure can jointly enhance corporate governance effectiveness. The study provides theoretical and policy implications for improving audit committee effectiveness and corporate governance in emerging markets.