Risk Governance and Audit Committee Effectiveness in Preventing Financial Misconduct

Abstract

This study explores how risk governance structures and audit committee effectiveness work together to prevent financial misconduct. Using a systematic literature review, it synthesizes evidence on board-level risk mechanisms such as risk committees, chief risk officers, and enterprise risk management and audit committee characteristics, including independence, financial expertise, diversity, size, and meeting frequency. The review shows that sound risk governance is linked to more disciplined risk taking and stronger monitoring, while effective audit committees are associated with lower earnings management, fraudulent reporting, corruption, and aggressive tax behaviour. The strongest deterrent to misconduct emerges when broad risk governance frameworks are closely aligned with active and independent audit committees that translate risk information into rigorous oversight of financial reporting and compliance. The study concludes that these two mechanisms act as complementary lines of defence and calls for further research on their interaction across sectors and emerging risks such as cyber-fraud.