Benefits of an Audit Committee
The audit committee is an operating committee of the board of directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company’s board of directors, with a Chairperson selected from among the committee members.
Good management involves matching key tasks with the appropriate people to achieve better results. Your company can derive the most benefit from an audit committee by following these five steps:
- Leverage your time. Financial reporting is becoming more important and complicated every year. An audit committee should be led by a designated “financial expert” and staffed with a select group of people knowledgeable about financial matters.
- Improve your internal Control. Internal control may not be at the top of your list of important objectives, but it should .be. Internal control is more than dual signatures on checks and segregation of duties. Properly designed, it will support every aspect of your company. Proper internal controls will lead to higher efficiencies in all processes, less waste of resources, more objective evaluation methods and more timely and accurate management measurements. Think about how valuable such improvements would be for your organization and how much you would be willing to pay a consultant to guide you in the right direction. This is another role an effective audit committee can fill.
- Improve your financial management. The audit committee focuses on the financial management and reporting of the company. This group provides a high level of specific expertise in this critical area of your company.
- Clarify the roles and responsibilities of your board of directors. A common myth is that a company can get by without an audit committee. The board of directors may be responsible for doing the work of an audit committee. But without clear responsibilities assigned, there is the risk that the task may be inefficiently or ineffectively executed, or perhaps not executed at all. Having a separate audit committee clarifies key responsibilities for your board.
- Bring value to your audit dollar. An audit is an expensive endeavor that all too many views as a “necessary evil” or another Cost of borrowing. An active audit committee stays involved with the auditors ‘throughout the year. The audit committee’s relationship with the auditor is similar to a willing and engaged patient who makes the physician better and more effective. Hidden problems can be discovered early and dealt with before they grow into something dangerous.