Audit committee

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In publicly traded US companies, the audit committee is an operating committee of the board of directors responsible for overseeing financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chair elected from committee members. Qualification (see "Composition" paragraph below) Audit committee is required for US public companies listed on the stock exchange. Audit committees are usually empowered to obtain the necessary resources and consulting expertise to carry out their responsibilities.

The role of audit committees continues to grow as a result of the issuance of the Sarbanes-Oxley Act of 2002. Many audit committees also have oversight of regulatory compliance and risk management activities.

Not for profit entities can also have an audit committee.

Internationally, the audit committee is a board committee that is responsible for overseeing the financial reporting process, the selection of independent auditors, and the acceptance of audit results both internally and externally. This committee assists the board of directors in complying with corporate governance and overseeing responsibilities in relation to entity financial reporting, internal control systems, risk management systems and internal and external audit functions. Its role is to provide advice and recommendations to the board within the scope of its terms of reference/charter. The terms of reference and requirements for audit committees vary by country, but may be influenced by economic and political unions capable of passing legislation. EU directives are implemented across Europe through country-level legislation. Although certain legal requirements may differ across countries in Europe, the sources of law on corporate governance issues are often found at the EU level and in non-mandatory corporate governance codes that cross national boundaries.

Video Audit committee

Definition

• Institute of definitions of the Internal Auditor: "The Audit Committee refers to the governance body charged with oversight of the organization's audit and control functions.Although these fiduciary obligations are often delegated to audit committees of the board of directors, Practical Advisors (.. ) is also intended to apply to other control groups with equal authority and responsibility, such as trustees, legislative bodies, owners of owner-run entities, internal control committees, or full board of directors. "(IIA Practice Advisory 2060- 2 of 2004).
• In Nigeria, the Audit Committee is defined as "The Board of Directors and the company's shareholder committee that is specifically responsible for reviewing the annual financial statements prior to submission to the Board of Directors" .
• The above definition is focused on the private sector. A similar definition has been developed by government auditors within INTOSAI's Internal Controls Standards: "Board of Directors Committees whose role typically focuses on aspects of financial reporting and on entity processes for managing business and financial risk, and for compliance with legal, ethical, and (b) entity compliance with statutory and regulatory requirements, (c) independent auditor qualification and independence, (d) performance of the entity's internal audit function and independent auditors and (e) corporate executive compensation (no remuneration committee). " (INTOSAI GOV # 9100 Standard," Internal Control Standard for Public Sector ", appendix 2) " definition INTOSAI " (PDF) . INTOSAI Definition . INTOSAI . Retrieved April 1 2011 .

In India, under Section 177 (1) of the Companies Act 2013, the Board of Directors of each listed company and the class or other classes of companies, as prescribed, will establish an Audit Committee.

In accordance with Rule 6 (Board Committee) Company Regulation (Council and Council Meeting), 2014, the Board of Directors of each listed company and the following company class shall establish the Audit Committee and Nomination and Remuneration Committee. Board:

All public companies that have:

• Paid Capital> = INR10 Crore;
• Turnover> = INR100 Crore;
• Loan Debentur Loan Deposit = INR50 Crore.

Maps Audit committee

Composition

Typically, membership of the Committee is subject to a maximum of 6 persons.

• In the United States, an eligible audit committee is required for a listed public company. To qualify, the committee shall consist of independent external directors with at least one qualification as a financial expert.
• EU, Regulation 8 on company law 2006/43/EC: "Each public interest body must have an audit committee The Member State shall determine whether the audit committee shall consist of non-executive members of the administrative body and/or members the supervisory body of the audited entity and/or member appointed by the shareholders meeting of the audited entity, at least one member of the audit committee shall be independent and shall have competence in the field of accounting and/or auditing. "
• Best practices of the Institute of Internal Auditors: "The audit committee will consist of at least three and not more than six members of the board of directors... Each committee member will be independent and financially literate.At least one member must be designated" expert financial, "as defined by applicable laws and regulations" .

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Responsibility

The Board of Directors and their committees rely on management to run daily business operations. The role of the Council is better described as monitoring or monitoring, rather than execution. The responsibilities of the audit committee usually include:

• Supervise financial reporting and disclosure processes.
• Choice of policy monitoring and accounting principles.
• Supervise the recruitment, performance, and independence of external auditors.
• Supervises regulatory, ethical, and reporting compliance.
• Monitor the internal control process.
• Supervise the performance of the internal audit function.
• Discusses risk management policies and practices with management.

The task of the audit committee is usually described in the committee charter, often available on the entity's website.

• The European Union: Directive 2006/43/EC, section 41.2: (...) the audit committee shall, inter alia: (a) Monitor the financial reporting process; (B) Monitor the effectiveness of the company's internal controls, applicable internal audits, and risk management systems; (c) Monitor legal audits of annual and consolidated accounts; (D) Review and monitor the independence of the auditor or legal audit firm, and in particular the provision of additional services to the entity being audited.
• Public sector: Cf. Standard INTOSAI GOV # 9100

Roles in financial reporting and accounting oversight

Audit committees usually review financial statements every three months and every year in public companies. In addition, members will often discuss complex accounting estimates and assessments made by management and application of new accounting principles or rules. Audit committees interact regularly with senior financial management such as CFOs and Controllers and are in a position to comment on the capabilities of these managers. If significant problems with accounting practices or personnel are identified or suspected, special investigations may be directed by the audit committee, using the outside consultation resources deemed necessary.

External auditors are also required to report to the committee on various matters, such as their views on the selection of management accounting principles, accounting adjustments arising from their audits, any disagreements or difficulties encountered in working with management, and any identified or illegal fraud actions.

Role in oversight of external auditors

Audit committees usually approve the selection of external auditors. The external auditor (also called the public accounting firm) reviews the entity's financial statements every three months and issues an opinion on the accuracy of the entity's annual financial statements. Changing the external auditor usually also requires the approval of the audit committee. The audit committee also helps to ensure that external auditors are independent, meaning that there is no conflict of interest that may impair the auditor's ability to issue his opinion on the financial statements.

• European Union: Directive 41/2004 and 41.4: "In the public interest entity, the proposal of an administrative body or supervisor for the appointment of an auditor or an official audit firm is based on a recommendation made by the audit committee , the auditor or audit firm shall report to the audit committee on key issues arising from mandatory audits, and in particular on material weaknesses in internal control in relation to the financial reporting process. "

Role in overseeing regulatory compliance

The audit committee discusses the risk of litigation or regulatory compliance with management, generally through directives or reports from the General Counsel, the main lawyer in the organization. Larger companies may also have a Chief Compliance Officer or Ethics Officer reporting incidents or risks associated with the entity's code of ethics.

Role in monitoring effectiveness of internal control process and internal audit

Internal controls include policies and practices used to control the operations, accounting, and compliance of entity regulations. Management and both internal audit functions and external auditors provide reports to the audit committee on the effectiveness and efficiency of internal controls.

• IIA Practical Advisor: Cf. PA1110-1 paragraphs 2 and 3 (where "board" means "organizational governing body, such as boards of directors, supervisory boards, (...) other appointed bodies of the organization, including audit committees to whom the chief audit executive may functionally report )
• European best practice for the role of the Audit Committee in overseeing internal audits: cf.

Role in risk management oversight

Organizations have a variety of functions that perform activities to understand and address risks that threaten the achievement of organizational goals. Policies and practices used by the entity to identify, prioritize, and respond to risks (or opportunities) are usually discussed with the audit committee. Having such discussions is required for listing on the New York Stock Exchange. Many organizations develop their practices toward the goal of a risk-based management approach called Enterprise risk management. The involvement of audit committees in non-financial risk topics varies significantly by entities. Dr. Ram Charan argues for a risk management early warning system at corporate board level.

• European best practices for the role of the Audit Committee in risk management: cf.

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The Impact of the Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 increases the responsibilities of audit committees and authorities. This increases the membership requirements and composition of the committee to include more independent directors. Companies are required to disclose whether a financial expert is in the Committee. Furthermore, the Securities and Exchange Commission and the stock exchange are proposing new rules and regulations to strengthen the audit committee.

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History

Below are some important milestones in the evolution of the audit committee:

• 1939: The New York Stock Exchange (NYSE) first supports the concept of an audit committee.
• 1972: The US Securities and Exchange Commission (SEC) first recommends that publicly owned companies form audit committees consisting of outside directors (non-management).
• 1977: The NYSE adopts a listing requirement that the audit committee is composed entirely of independent directors.
• 1988: AICPA publishes SAS 61 "Communication with Audit Committee" which handles communications between external auditors, audit committees, and management of SEC reporting companies.
• 1999: NYSE, NASD, AMEX, SEC and AICPA completed major rule changes based on the Blue Ribbon Committee to Improve the Effectiveness of the Company's Audit Committee.
• 2002: Sarbanes-Oxley Act passed after corporate scandal and includes whistleblower and disclosure requirements of financial experts for the audit committee.

Interaction with Board, and with Non-Executive Board Member

• The European Confederation of Institutes of Internal Auditing (ECIIA) best practices:

"The work of the audit committee can only be useful if enough time is given on the board's agenda for the audit committee to present its work The audit committee should also feel that the council is taking appropriate action on the report."

• EU best practices: Cf. Resolution of the European Parliament March 10, 2009 on the implementation of the 2006/43/EC Directive on annual compulsory audits of accounts and consolidated accounts (2008/2247 (INI)): '' "(...) Emphasizing that recent experience demonstrates the need for interaction frequent and high quality audit committees and between independent directors, supervisory boards and auditors, and that non-executive board members should carefully consider the possibility of holding meetings without an executive board member present. "''

Interaction frequency with management

Many audit committee chiefs make interim calls with key management members between quarterly meetings. Primary contacts may include CEOs, CFOs, Chief Auditors, and external audit partners. Many councils also schedule dinners before formal meetings that allow informal interaction with management. Some companies also ask their council to spend a certain amount of time studying their operations outside the presence of council meetings.

Executive Session

This is a formal meeting officially scheduled between an audit committee and a key member of management or an external auditor. These meetings are usually unstructured and provide an opportunity for the committee to get feedback from these managers personally. The key audit committee question asked in the session was: "Do you want to tell us?"

Evaluation

Audit committees must complete annual self-evaluation to identify improvement opportunities. This involves comparing the performance of the committee versus its charter, formal guidelines and rules, and against best practice. Such reviews are confidential and may or may not include a specific member evaluation.

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Survey results

Various consultants and public accounting firms conduct research on audit committees, to provide benchmarking data. Some of the results are identified below:

• 54% of the committee members surveyed felt the audit committee was "very effective", while 38% indicated "somewhat effective."
• Risk management, internal controls, and accounting estimates and assessments are key priority areas for 2007.
• Most audit committees have 3-4 members and are usually chaired by experienced people as CFOs, external auditors, or CEOs.
• The audit committee meets 6-10 times per year, either face-to-face or via teleconference, with previous ones lasting from 1-4 hours and last 1-2 hours.
• Members of the audit committee spend 50-150 hours on their responsibilities each year.
• Percentage of audit committee with oversight responsibility for: IT compliance (66%), business continuity (50%), and information security (45%).
• 41% "very satisfied" with internal audit function, while 52% "somewhat satisfied."
• Two thirds feel the position of the Head of Internal Audit is for professional internal auditors, not as "stepping stones" for other roles.
• 93% indicated "somewhat" or "much more effective" audit committees since the Sarbanes-Oxley Act was implemented in 2002.
• 58% of committee members are "satisfied" that they understand the management process to identify and assess significant business risks.
• Only 17% of audit committees have primary responsibility for overseeing non-financial risks; the full board has this responsibility in 56% of companies.

In a 2011 study, the Council of Europe concluded that: "The Benchmarking results from a sample of 15 international organizations in Europe show that 11 have audit committees (whose names may vary from Audit Committee, Audit Advisory Committee, Audit Advisory Board, Audit Progress Committee , Audit Committee and Audit Committee, Independent Advisory Committee, Expert Independent Advisory Committee) and in seven, the Audit Committee plays a role in the selection of the External Auditor. .

A 2009 study on 23 international organizations showed that 10 had an Audit Committee and 3 were considered to have one in the future, with 8 reporting to the level of the Governing Body and 2 reporting to the DG/Executive Director. The size of all Audit Committees is between 3 and 9 members, with 5 committees having a mix of external expert members and internal members.

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See also

• Corporate governance
• ISA 310 Business Knowledge

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References

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External links

• Example Terms of Reference of the Audit Committee : in the Council of Europe (1. Guiding Principles, 2. Role of the Committee, 3. Membership of the Committee, 4. Conditions of appointment, 5. Rules and procedures, 6 Access to documents, 7. Reporting, 8. Resources): wcd.coe.int/wcd/ViewDoc.jsp?id=1684131&Site=CM January 12, 2011.
• Example Charter of the Audit Committee by TheIIA.org Committee Charter
• Powerpoint presentations in the Audit Committee by TheIIA.org: Purpose, Process, and Professionalism. [1]
• Association of Directors of National Companies
• Member Association of Audit Committee, Inc.

Source of the article : Wikipedia