What Is the Audit Committee?

An audit committee is a sub-committee of a board of directors. It is in charge of supervising the processes of financial reporting, internal controls, risk management and auditing. 

Audit committees are among the key operating groups of an organisation’s board of directors — a major element of the corporate governance structure. Members of this board committee must ensure accurate and transparent financial reporting and proper disclosure of financial statements. They must also verify the company’s compliance with the prevailing laws and regulations. 

Composition of the audit committee 

Audit committees are made up of members of the board of directors, typically including three or more individuals. Many audit committees comprise only external board members, with an independent director as the chair of the committee. There should be representation from at least one member with experience in the fields of finance and accounting to ensure that the committee serves its purpose effectively. 

Responsibilities 

Here are the key responsibilities of the audit committee: 

• Reviewing and approving financial statements and disclosures 
• Maintaining an effective line of communication with the CFO and controller 
• Providing a channel of communication between the board, management and auditors 
• Reviewing compliance programs to ensure their efficacy and identifying problem areas 
• Overseeing internal controls, ensuring that the management has a well-functioning system 

• Choosing and supervising the role of the external auditor to ensure accurate and fair reporting 
• Overseeing the company’s risk management framework and assessing its performance 
• Addressing any potential conflicts of interest related to financial matters 
• Monitoring compliance programmes with applicable laws, regulations and accounting standards 

Legal, ethical and regulatory considerations 

The audit committee should sit with the chairperson of the board to review and assess all legal and regulatory concerns that can substantially impact the company’s financial reports. The committee must also assess the code of ethics and recommend suitable compliance policies for the board’s approval.