Audit Committee Obligations
The role of the Audit Committee is one of oversight of the integrity of a company's financial affairs in both the interests of shareholders and on behalf of the Board. This includes everything from the effectiveness of a company's internal control environment to the fair presentation of information in the financial statements.
For listed companies, there is a requirement for an Audit Committee to report to shareholders in the annual report and for unlisted companies, an Audit Committee can ensure best practice is adhered to.
The Audit Committee of the board of directors is responsible for oversight of the financial reporting process, selection of the independent auditor, and the receipt of audit results both internal and external.
In many companies the Audit Committee also deals with risk areas and acts as a governance committee, where increasingly issues are delegated by the Board to subcommittees.
Role of the Audit Committee
- Risk management and internal control environment
- Whistleblowing policies and procedures
- Financial reporting
- Appointment of external auditors
- Audit effectiveness
Audit Committee Structure
For a listed company, the committee should be made up of at least three independent Non-Executive Directors (NEDs). For smaller listed companies, the requirement reduces to two. The company Chairman is allowed to be a member, although not the Chair of the Audit Committee provided the independence criteria is met. In general, the rule of thumb is that the size of the Audit Committee should be appropriate for the complexity of the business and the risks it faces.
The role of the Audit Committee Chair is an important one, creating an environment where all members are comfortable having frank and open discussions, along with setting the agenda and planning the work of the committee.