Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?

Answer (A) is correct. The audit committee is a subcommittee made up of outside directors who are independent of management. Its purpose is to help keep external and internal auditors independent of management and to ensure that the directors are exercising due care. However, if independence is impaired by personal and professional friendships, the effectiveness of the audit committee may be limited.