The Audit Committee operates to aid the Board of Directors discharge its obligations relating to due care, diligence and skill. One of the primary objectives of the Audit Committee is to strengthen communication between the Board of Directors, senior financial management and external parties. A further objective is to improve efficiency within the board of directors and in communications.
‘The independent Audit Committee fulfils a vital role in corporate governance. The Audit Committee can be a critical component in ensuring quality reporting and controls, as well as the proper identification and management of risk’.
An Audit Committee provides a forum where Directors, management and auditors together can deal with issues relating to the management of risk and financial reporting obligations. Even though external auditors have a responsibility to shareholders, their views are valuable to directors who govern the organisation on behalf of the shareholders.
The role of an effective Audit Committee includes the following:
- Assisting the Board of Directors to exercise due care, diligence and skill in relation to:
- Reporting of financial information to users of financial reports.
- Application of accounting policies.
- Financial management.
- Internal control systems.
- Risk management systems.
- Business policies and practices.
- Protection of the entity’s assets.
- Compliance with applicable laws, regulations, standards and best practice guidelines.
- Improving the credibility and objectivity of the accountability
- Providing a formal forum for communication between Directors and senior management.
- Improving the efficiency the Board by delegating tasks to the
- Improving the effectiveness of the internal and external audit
- Facilitating the maintenance of the independence of the external auditor.
- Providing a structured reporting line for internal audit.
- Improving the quality of internal and external reporting of financial and non- financial information
- Improving the correlation between related financial and non- financial information and reports.
- Strengthening the role and influence of non-executive Directors.
- Fostering an ethical culture throughout the organisation.
Here are some of my views on key Audit Committee’s Responsibilities
The Audit Committee’s main responsibilities relate to external reporting, internal control and risk management, external and internal auditing.
- External reporting entails consideration of the appropriateness of the organisation’s accounting policies and principles to ensure that they are in accordance with the financial reporting framework; assessment of significant estimates and judgments in financial reports; review of management’s practices; liaison with the external auditor; assessing the management of non-financial information in documents and assessing internal control systems; reviewing corporate governance reporting; recommendations to the board.
- Internal control and risk management involves assessing internal processes to identify and manage high and medium risks. The Audit Committee is also responsible for ensuring that the organisation has an effective risk management system, addressing the effectiveness of the internal control systems and evaluating the process in place for assessing and improving internal records.
- External auditing concerns the appointment, remuneration and monitoring of the external auditor.
- Internal auditing concerns coordinating and communicating with the internal auditor, as well monitoring management’s responsiveness to internal audit conclusions.
 Report of the National Association of Corporate Directors (NACD) Blue Ribbon (US) Commission on Audit Committee’s: a practical guide
 Audit Committees: Best Practice Guide 2nd Edition, August 2001, Australian Accounting Research Foundation, Institute of Internal Auditors-Australia, Australian Institute of Company Directors