The correct answers are:

• It can strengthen the position of the internal audit function;

• It can help to create a climate of discipline and control which will reduce the opportunity for fraud; and;

• It can strengthen the position of the external auditor by providing a channel of communication and forum for issues of concern

Note that internal audit's position is strengthened because they can report to the audit committee rather than directly to the board, creating a greater degree of independence.

The audit committee is not perceived to promote the authority of the board. In fact, the executive directors may not understand the purpose of an audit committee and may perceive that it detracts from their authority.

The running of an audit committee is likely to increase not decrease costs.