Have you looked at mitigating the governance risk in your business? An audit committee can be a great tool in this regard.
As the business operating environment becomes more complex, boards of directors, trustees and management are looking to mitigate some of their governance risks through the setting up of an audit committee.
The audit committee is a sub-committee of the board and its functions include the following:
- Assisting the governing body in ensuring efficient and effective accounting policies and internal controls are established and followed.
- The audit committee also manages the communication process between the governing body, management, and internal and external auditors to ensure effective communication exists between these key parties.
The exact responsibilities assigned to the audit committee to fulfil these missions will vary from entity to entity, depending on the entity size, nature of its activities, and the responsibilities assigned to other committees of the governing body.
The tasks most commonly assigned to an audit committee include:
- Recommending an independent audit firm to the governing body.
- Reviewing the scope and plan for the independent audit.
- Reviewing the results of the audit with the external auditors.
- Providing oversight of the internal control structure.
- Resolving disagreements between auditors and management.
Audit committee members should consider meeting the entity’s auditors twice a year – once to discuss the auditor’s work plan and once to review their findings before they are presented to the governing body. In most cases, however, audit committee members’ duties are more involved. Some audit committees may be assigned a much wider scope of duties. For instance, larger membership entities may have an internal audit department, in which case the audit committee would often be charged with oversight of that department’s staffing and performance.
Some audit committees are charged with establishing and monitoring an organisational code of conduct, including a formal policy for avoiding conflicts of interest. Others are asked to review the entity’s overall risk management profile, including investment practices and insurance coverage.
If your audit committee is new, consider working with the governing body to draft a charter that spells out, in writing, the committee’s exact responsibilities.If you are being asked to serve on an existing audit committee, be sure to determine exactly what duties are assigned to your committee.
Please contact your local Findex adviser if you would like more information or assistance on audit committees.