We expect companies will face an increasingly difficult challenge in finding, developing, and retaining the talent required at all levels of the finance function. Audit committees should consider whether the finance function’s talent plan aligns with its strategy and assess which types of talent are needed or are in short supply and how the company will successfully compete for this talent. Three areas of focus to help audit committee members and CFOs maintain a strong working relationship. (d) The chairperson of the audit committee shall be an independent director and he shall be present at Annual general meeting to answer shareholder queries. This is important to avoid conflicts of interest and ensure the integrity of the audit process. Member of the audit committee must have full-time experience as a company employee for the past three years.
Risk management and internal controls
Many jurisdictions expect that at least one of the committee members will be financially savvy. As an example, the German Corporate Governance Code requires at least one member of the audit committee to have expertise in the field of accounting, with at least one other having expertise in the field of auditing. Where independence is not required of all members, financial expertise can often be required of the member who is deemed independent. Being an audit committee member is a weighty and often pressured job that requires a substantial time commitment, as well as very specific skills from those who take on the role. So, how can audit committee members be as effective as possible, both as individuals and as a team? A new EY publication, the Audit Committee Guide (pdf), explores this question in depth, offering practical advice for new and existing audit committee members, regardless of where they are based.
These legal frameworks outline the minimum responsibilities and composition requirements for audit committees across different jurisdictions. Understanding the key roles and responsibilities of an audit committee is essential for stakeholders who aim to foster trust and maintain high standards of corporate governance. Our hope is that this Guide will serve as a resource for audit committees to continue to fine-tune their oversight and governance processes and drive robust conversations to deliver effective oversight as they help guide their companies forward.
Internal audit oversight
Now let’s start with the main requirement of the audit committee and why this committee is so important for the success of the entity. Whether you’re a new member of an audit committee or a seasoned veteran, our Audit Committee Guide offers practical considerations and resources to help you fulfill your responsibilities. Explanation (1).-For the purpose of this regulation, “financially literate” shall mean the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows. Let’s now review in more detail what duties of audit committee each of these focus areas presupposes. Independence can also potentially be impaired by tenure on the committee, or broadly on the board.
The EY Audit Committee Guide (PDF)
A practical, user-friendly reference for new and seasoned audit committee members and the the audit committee requirements management and audit teams who work with them. (a) quarterly statement of deviation(s) including report of monitoring agency, if applicable, submitted to stock exchange(s) in terms of Regulation 32(1). (20) Carrying out any other function as is mentioned in the terms of reference of the audit committee.
- A new EY publication, the Audit Committee Guide (pdf), explores this question in depth, offering practical advice for new and existing audit committee members, regardless of where they are based.
- She has authored numerous articles and papers, several of which have been cited in reputable journals.
- This committee functions as an independent body that monitors accounting processes, financial statements, and both internal and external audit functions.
- This expertise enables the committee to effectively review complex financial information and address technical accounting issues.
- CFOs now often lead—not just support—technology and innovation projects, and lead or play a key role in enterprise risk management.
The reason for this is that when audit committee members are independent, they are more likely to have a skeptical mindset and a willingness to openly challenge management. Additionally, being independent allows them to freely state problems with the company’s corporate reporting or processes, without being unduly influenced by the potentially difficult consequences for the company and its executives. The audit committee must coordinate with the management team, independent auditor, and internal auditors to monitor the choice of accounting policies and principles and to ensure compliance with laws and regulations. Some audit committee chairs told us that they talk with the CFO monthly or even weekly, while others said they talk at least once quarterly to prepare for the audit committee meeting and reach agreement on the agenda and attendees.
- This involves selecting and appointing the external auditors, as well as reviewing their performance and independence.
- It includes ensuring that all the information about contingencies, transactions, and accounting policies is properly presented.
- As financial scandals and regulatory scrutiny have increased, the importance of having an effective audit committee cannot be overstated.
- For example, at some companies, the audit committee’s primary relationship is with the controller or CAE.
- Nevertheless, the committee, as a whole, needs to have the financial expertise and industry understanding to effectively discharge its core duties.
- Having an audit committee set up and reporting to the board is not mandatory for every company.
Services
Where the design of risk responses is adequate, the audit committee will seek evidence that the responses are operating as intended. Dive into the audit committee’s responsibility to oversee financial reporting and related internal controls, risk, ethics and compliance, and auditors. A critical aspect of financial reporting oversight is the evaluation of significant accounting policies and estimates.
It should also consider how it will monitor management’s plan to address the findings of the auditor’s “management letter points report” – a summary of observations arising from the audit. For effective audit committee oversight, a company also needs to enlist an independent auditor. As regulations evolve, audit committees must stay informed about changes across jurisdictions and ensure compliance with industry-specific requirements. They monitor the impact of new accounting standards, address increased disclosure obligations, and navigate complex tax regulations.
62% of audit committee chairs have a strong financial background, including public accountant executives, CFOs, investors and bankers, and other financial corporate leaders. Annual self-assessments help review the committee’s charter, evaluate individual contributions, and identify areas for improvement. Implementing changes based on these evaluations ensures continuous enhancement of oversight, accountability, and governance. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting.
This vigilance helps in mitigating legal risks and maintaining the organization’s reputation. Audit committees are a fundamental pillar of good corporate governance, enabling their company to build its trustworthiness vis-à-vis its stakeholders. As a subcommittee of the board (or supervisory board in a dual-board structure), they are responsible for monitoring whether their company delivers high-quality corporate reporting that presents a true and accurate picture of its business performance. The traditional CFO focused primarily on financial reporting, which includes the integrity of numbers and the adequacy of internal controls over financial reporting, as well as the internal and external audit functions. An effective audit committee not only safeguards the integrity of financial reporting but also enhances investor confidence and supports robust governance practices.
For public companies, the central purpose of an audit committee is to ensure oversight of the financial reporting, risk management, internal and external audit, and ethics and compliance. Nevertheless, it should exercise caution when allowing other board members, who are not committee members, to participate in its meetings. An audit committee is a sub-group of a company’s board of directors responsible for the oversight of the financial reporting and disclosure process. To be successful, the audit committee should be aware of the processes and internal controls in the organization. The Companies Act, 2013 mandates the formation of specific committees for corporate governance and compliance.
This oversight extends to the approval of the internal audit plan, which should align with the organization’s strategic objectives and risk profile. It is the audit committee – not the CFO – that owns the company’s relationship with the external auditor, having responsibility for its appointment, remuneration and oversight. Effective committees invest in ongoing education, conduct regular self-assessments, and maintain open communication with management and auditors. Staying informed about industry and regulatory trends is essential for proactive oversight. EY’s guide on high-performing audit committees underscores these points, offering practical advice for new and existing members. It highlights the importance of dynamic, evolving entities in safeguarding organizational integrity and resilience.
An audit committee is a specialized group within a board of directors responsible for overseeing financial reporting and disclosure. This committee functions as an independent body that monitors accounting processes, financial statements, and both internal and external audit functions. Audit committees are navigating increasingly complex responsibilities, from cybersecurity to talent management, yet many still see untapped potential in their internal audit functions.
