An Audit committee plays a crucial role in the governance of an organisation, particularly in ensuring the integrity of its financial reporting and the effectiveness of its internal controls.
What is an Audit Committee?
An Audit committee is a subcommittee of the board of directors, typically composed of independent, non-executive directors. These directors bring an objective perspective to the oversight of the organisation’s financial reporting process, audit functions and internal controls. The role and responsibilities of an Audit committee can be varied however, the typical responsibilities of an Audit committee include
Financial Reporting Oversight
Ensuring the accuracy and integrity of the financial statements is crucial. The committee should be reviewing the financial statements to ensure they are accurate and complete.
External Auditors
This includes the selection and appointment of the external Auditors, ensuring the independence of the auditor and communication between the auditor and the Board of Directors
Internal Controls (including internal Auditors if relevant)
The committee should be assessing the effectiveness of internal controls and ensuring the internal controls are adequate for the size of the organisation
Compliance
Adherence to regulatory and legal requirements is a vital function of the Audit committee
Do I need an Audit Committee?
All entities listed on the ASX are required to have an Audit Committee.
Not-for-profit entities, unlisted public companies and private companies are not legally required to have an Audit Committee. However, larger not-for-profit entities and non-listed entities may benefit from having an Audit Committee and the oversight it brings. An audit committee is considered best practice for these organisations.
Smaller not-for-profit entities and non-listed entities may not have Audit committees but the functions of the Audit committee should still be considered by the directors and committees of these organisations. These entities should still be contemplating the accuracy of the financial statements, internal controls and compliance with regulatory and legal requirements.
Benefits of an Audit Committee
The benefits of an Audit Committee include enhanced financial integrity, improved risk management, increasing the likelihood of compliance with regulatory and legal requirements and strengthening credibility with stakeholders.
Audit committees are a vital component of an organisation’s governance framework. Audit committees exist to help the board maintain the organisation’s overall integrity, financial credibility and long-term viability. Establishing an Audit committee is an important step towards ensuring robust governance and sustainability.
For more information on Accru’s audit services, please contact your local representative.
