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Audit Committee

Audit Committee

What Is an Audit Committee?

An audit committee is one of the major operating committees of a company's board of directors that is in charge of regulating financial reporting and disclosure.

All U.S. publicly-exchanged companies must keep a qualified audit committee to be listed on a stock exchange. Committee members must be comprised of independent outside directors, including at least one person who qualifies as a financial expert.

How an Audit Committee Works

The audit committee works closely with auditors to guarantee that company's books are right and that no irreconcilable situations exist between auditors or any outside counseling firms employed by the company. Preferably, the chair of the audit committee will be a Certified Public Accountant (CPA). Frequently, nonetheless, a CPA isn't accessible for the audit committee, let alone a member of the board of directors. The New York Stock Exchange (NYSE) expects that the audit committee incorporate a financial expert, however this qualification is ordinarily met by a retired banker, even however that person's ability to get fraud might be not exactly expert. The audit committee ought to meet something like four times a year to survey the latest audit, either in-person or by means of video chatting. An extra meeting ought to be held in the event that different issues should be tended to.

Audit committees keep up with communication with the company's chief financial officer (CFO) and controller. The committee has the authority to start special examinations in situations where it is resolved that accounting rehearses are dangerous or suspect, or when serious issues emerge with employees. A internal auditor would help the committee in such efforts.

The audit committee's job incorporates the oversight of financial reporting, the monitoring of accounting policies, the oversight of any outside auditors, regulatory compliance and the discussion of risk management policies with management. The duties and sythesis of a company's audit committee can be found in SEC Form DEF 14A, or proxy statement.

Committee members might change occasionally, contingent upon the movement of personnel on or off the board or change of committee tasks. Beside annual compensation for directors, the individuals who serve on an audit committee (similar applies for all committees) are paid also for each meeting joined in.

Audit Committee Hazards

The audit committee must view its liabilities exceptionally in a serious way. Financial reporting, compliance and risk management are subject to a number of hazards, especially when the company is a large organization with great many personnel and reporting systems extending across the globe. Exogenous dangers, for example, cyber hacking are under the domain of an audit committee, making its job even really testing. Cybersecurity ought to be a rising concentration for audit committees in corporate boardrooms all over.


  • Per regulation, the audit committee must incorporate outside board members as well as those knowledgeable in finance or accounting to deliver legit and accurate reports.
  • An audit committee is made of members of a company's board of directors and manages its financial statements and reporting.
  • Committee members must approve the company's books and get a sense of ownership with any misreporting.