Directors Audit Committee
An audit committee is an operating committee of a company’s board of directors that is in charge of overseeing financial reporting and disclosure. All publicly-traded companies must maintain a qualified audit committee in order to be listed on a stock exchange. Committee members must be made up of independent outside directors, including a minimum of one person who qualifies a financial expert.
Roles and responsibilities of such Audit Committee –
Audit committees maintain communication with the company’s chief financial officer (CFO) and controller. Audit committees typically base the authority to initiate special investigations in the case where they determine accounting practices are problematic or suspect or where problems exist a with personnel. The audit committee’s role includes the oversight of financial reporting the monitoring of accounting policies, the oversight of any external auditors, regulatory compliance, and the discussion of risk management policies with management.
Committee members can expect to participate in an executive session at each meeting. These sessions can be used to meet with auditors; key members of management or financial reporting stall and provide the opportunity to glean candid information on potentially sensitive topics.
A recent survey of audit committee members reveals that a key focus has become enterprise risk management (ERM). Those surveyed ranked the level of challenge related to enterprise risk management significantly above governance, risk management, financial reporting and internal audit.
The reason is simple. ERM embraces every risk perspective of an organization. While the entire board is responsible for enterprise risk management, the ownership may rest with the audit committee.
Audit committees should re-examine focus, monitor effectiveness and set the course for future activities. Newly formed committees can benefit from the wealth of experience offered by those who have spent time in the trenches.
Effective internal control emanates from the top and permeates throughout an organization. Senior management must set the tone for internal control, and the audit committee can be an important piece in the internal control puzzle.
All too frequently in the past, audit committees were stacked with cronies of the chairman and president. They tended to be rubber stamps of the chief executives that met the letter, but certainly not the spirit, of the rules. In such an environment, they tended to disguise control rather than contribute to it.
But an audit committee established with the proper attitude and responsibility will accomplish exactly that. If you’re a sceptic, you naturally’ may wonder how more bureaucracy can contribute to profits.