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Audit committee
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An audit committee is an operating committee of a publicly held company. Committee members are normally drawn from members of the Company's board of directors. An audit committee of a publicly traded company in the United States is composed of independent or outside directors.
Responsibilities of the audit committee typically include:
- Overseeing the financial reporting process.
- Monitoring choice of accounting policies and principles.
- Monitoring internal control process.
- Overseeing hiring and performance of the external auditors.
The U.S. Securities and Exchange Commission (SEC) first recommended that publicly held companies establish audit committees in 1972. The stock exchanges quickly followed by either requiring or recommending that companies establish audit committees. Over the years, various initiatives to strengthen and increase the responsibilities of audit committees have been made.
In 2002, the Sarbanes-Oxley Act increased audit committees’ responsibilities and authority, and raised membership requirements and committee composition to include more independent directors. In response, the SEC and the stock exchanges proposed new regulations and rules to strengthen audit committees.
Current costs of Sarbanes Oxley compliance are estimated at over $6 Billion per annum. A White Paper on cost reduction can be found at http://www.sarbanesoxleywhitepaper.com
The operation of an audit committee is ruled by "Term of reference of audit committee". [1]
- Corporate governance
- Independent Non-executive Director
- ISA 310 Knowledge of the Business