By Siena Rambo
Do you need an audit committee? Public companies are required by Sarbanes-Oxley to have an audit committee. However, audit committees are not required for other types of entities but provide great benefit to an organization. The following are some highlights of an audit committee and their role.
Through the use of an audit committee, those charged with governance can ensure that appropriate oversight is in place and functioning properly. When appropriate oversight function is in place, fraud can be prevented or deterred. The AICPA Professional Standards addresses the responsibilities of the audit committee. In AU Section 316, “Consideration of Fraud in a Financial Statement Audit,” it states that “the audit committee should evaluate management’s identification of fraud risks, implementation of antifraud measures, and creation of the appropriate ‘tone at the top.’ Active oversight by the audit committee can help to reinforce management’s commitment to creating a culture with ‘zero tolerance’ for fraud.”
An audit committee also plays an important role in an entity’s external audit. There should be “an open and candid dialogue with the independent auditors regarding management’s risk assessment process and the system of internal control. Such a dialogue should include a discussion of the susceptibility of the entity to fraudulent financial reporting and the entity’s exposure to misappropriation of assets.” according to the AICPA’s Professional Standards.
A summary of the requirements for members of an audit committee, according to AU Section 316 of the AICPA Professional Standards are as follows:
All audit committee members should be financially literate, and each committee should have at least one financial expert. The financial expert should possess:
The AICPA’s Audit Committee Effectiveness Center has additional resources and toolkits for non-profits, governmental entities, private and public companies.