Audit Committee
The audit committee is a committee of the board of directors responsible for overseeing the company’s external audits and internal controls. The primary responsibilities of the audit committee include:
1. Overseeing the External Audit: Appointing and overseeing the independent auditor. Reviewing the auditor’s report and any other audit-related communications. Discussing audit findings with the auditor and management. Approving the auditor’s fees and expenses.
2. Assessing Internal Controls: Reviewing and evaluating the company’s internal controls over financial reporting. Assessing the effectiveness of the company’s internal controls. Identifying any control weaknesses or risks.
3. Monitoring Management’s Response: Reviewing management’s response to audit findings and internal control weaknesses. Assessing the effectiveness of management’s corrective actions. Ensuring that management is taking appropriate steps to address any issues.
4. Reporting to the Board: Reporting the audit committee’s findings and recommendations to the board of directors. Providing the board with any necessary information or assistance.
5. Maintaining Independence: Ensuring that the audit committee members are independent from management and the auditor. Disclosing any potential conflicts of interest.
6. Meeting Regularly: Meeting regularly with the auditor, management, and other relevant parties. Maintaining a clear and open communication channel.
7. Continuing Education: Requiring members to obtain continuing education credits in accounting, auditing, and financial reporting.
8. Audit Committee Charter: Establishing a formal charter that outlines the committee’s responsibilities, membership requirements, and operating procedures.
Common Members:
- Independent directors
- Audit committee chair (usually a non-executive director)
- Chief executive officer
- Chief financial officer
- External auditor
Additional Responsibilities:
- Reviewing and approving the company’s financial statements.
- Overseeing the company’s internal audit function.
- Engaging with external auditors and management on any issues related to the audit.
FAQs
What is an audit committee?
Itโs a board subcommittee overseeing financial reporting, audits, and compliance.
Who has an audit committee?
Public companies, large private firms, banks, and non-profits typically have one.
What are the main roles of an audit committee?
To oversee financial reporting, audits, compliance, and risk management.
Who makes up the audit committee?
Independent board members, often with finance or accounting expertise.
What powers does an audit committee have?
They review financials, approve audit plans, assess risks, and ensure controls.
