A committee was set up under the chairmanship of ADRIAN CADBURY in May 1991 by financial reporting council, the London

stock exchange and the accountancy profession to look into the financial aspect of corporate governance. Its sponsors were concerned at the perceived low level of

confidence both in financial reporting and in the ability of auditors to provide the safeguards which the users of company reports sought and expected. The underlying factors were seen as the looseness of accounting standards, the absence of a clear framework for ensuring that directors kept under review the controls in their business, and competitive pressures both on companies and on auditors which made it difficult for auditors to stand up to demanding boards. The committee first
submitted its report for public scrutiny on 27 may, 1992.

The Committees objective is to help to raise the standards of corporate governance and the level of confidence in financial reporting and auditing by setting out clearly what it sees as the respective responsibilities of those involved and what it believes is expected of them. The role of the auditors is to provide the shareholders with an external and objective check on the directors financial statements which form the basis of that reporting system. Although the reports of the directors are addressed to the shareholders, they are important to a wider audience, not least to employees whose interests boards have a statutory duty to take into account. The recommendations made by Cadbury committee are as follow:
1.Decision making power should not be vested in a single person. i.e., there should be separation of the roles of chairman and chief executive. 2.Non executive directors should act independently while giving their judgment on issue of strategy, performance, allocation of resources and designing codes of conduct. 3.A majority of directors should be independent non executive directors, i.e., they should not have any financial interest in the company. 4.The term director should not exceed three years. This can be extended only with prior approval of the shareholders. 5.there should be full transparency in matters relating to directors emoluments. 6.A remuneration committee made up wholly or largely of non executive directors, should decide on the pay of the executive directors. 7.There should be a profession and objective relationship between the board and the executives. 8.The pension funds should be managed distinct from the company. 9.Information regarding the audit fee should be regular rotation of auditors. 10.the interim company report should give the balance sheet information and should be reviewed by auditors.