An audit committee oversees accounting procedures, financial reporting, and disclosure of financial information. They review reports, monitor compliance, and investigate irregularities. They hire outside consultants and supervise external auditors. The committee’s responsibilities are to ensure accounting best practices, avoid conflicts of interest, and protect the financial stability of the organization.
An audit committee is a group of individuals, usually from the board of directors, who oversee accounting procedures, financial reporting, regulatory compliance, and disclosure of financial information. Publicly traded companies are required by law to disclose and disclose this financial information to shareholders. Typically, a corporate audit committee will hire outside consultants to assist it. The responsibilities of an audit committee include regular periodic reviews of financial reports, communicating with senior management to implement new accounting practices or regulations, and, if necessary, hiring an outside consultant to conduct a special investigation into any alleged irregular or illegal accounting.
One of the primary roles of the audit committee is to oversee the financial reporting process and how that financial information is disclosed. Committee members must be knowledgeable, proactive, accountable, and willing to investigate all actual or suspected accounting irregularities and illegal activities within the organization. Audit committees review annual and quarterly reports, monitor compliance with laws and regulations, and report on important financial matters. The audit committee has the authority to challenge any questionable management practices or methods, particularly in the area of accurate accounting, risk management and financial accountability.
The rules and procedures used to make decisions affecting the company must ensure the best possible outcome or success while maintaining a balance with the wishes and needs of that company’s shareholders. Audit committees were developed due to declining public and shareholder trust in companies. New methods of accountability, including corporate audit committees, have been introduced as a way to put an end to illegal or unprofessional activities. Members of these committees have a fiduciary duty to ensure that the company learns and follows accounting best practices, avoids conflicts of interest, and protects the financial stability of the organization.
An external auditor may be hired and supervised by the audit committee. This auditor is generally accountable to both the corporate audit committee and the board of directors. In the United States, the Sarbanes-Oxley Act mandates that external auditors engaged by publicly traded US companies may report directly to the audit committee. The activities and relationships between the audit committee and the external auditor are regulated by government authorities such as the Securities Exchange Commission (SEC) and the New York Stock Exchange (NYSE). All duties and responsibilities of the corporate audit committee along with any findings of external auditors are designed to make companies more financially accountable to shareholders and to demonstrate compliance with appropriate regulations.
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