Roles of audit committee
An Audit Committee does not focus solely on internal audit activities or on financial issues. Recent trends are for it to take on broader roles and responsibilities. The establishment of an Audit Committee affords the opportunity to set aside time to focus on governance, risk and control issues.
The key responsibilities of an Audit Committee include:
overseeing the risk management framework and processes;
reviewing compliance related matters and internal controls;
overseeing the relationship, appointment and work of the external and internal auditors; and
reviewing the annual financial statements and recommending them for governing body approval.
The audit committee can contribute to the success of internal auditors and the achievement of their value-added activities by ensuring that they have
1. Sufficient independence from management by reporting to and being held accountable to the audit committee
2. Adequate resources, competence, and focus to assess the company’s operational efficiency, internal control effectiveness, ERM, and reliability of financial reports
3. Proper knowledge of the company’s corporate governance, internal control, financial reporting, and audit activities
4. The mechanisms and confidence to bring forward controversial financial reporting issues
5. A process for communicating directly with the company’s audit committee on a regular and timely basis
6. Access to the audit committee to discuss concerns related to management activities, financial reporting risk, and fraudulent financial reporting
7. Audit committee approval of the budget and staffing of the internal audit function.
Benefits and challenges of internal audit reporting directly
to the board audit committee
Benefits | Challenges |
Ability to transcend all departmentswithout fear of limitation of scope bybeing tied to, for example, the financedepartment.The board and audit committee know thatthe information they are receiving on theinternal controls and risk managementsystems reflects a true description andhas not been “watered-down” or filteredby management beforehand.The independence of the internal auditfunction is absolute.The funding of the internal audit functionis outside the normal process ofbudgeting thereby allowing resources tobe allocated by the assurance needs ofthe organisation as assessed by theboard/audit committee.Enables the board/audit committee todirectly and critically analyse and evaluatethe internal audit function in itscontribution to the fulfilment of...