CORPORATE GOVERNANCE and AUDIT COMMITTEE'S
Role of the Audit Committee
Effective audit committees and auditors build confidence in the reliance and integrity of financial reporting and enhance audit quality. The audit committee plays a critical role in creating an environment that accommodates an open discussion in a culture of integrity, respect and transparency. Audit committees are responsible for overseeing the work of the auditors and need to understand the audit strategy, be satisfied that it addresses the major audit risks, and make sure that the auditors exercise appropriate professional skepticism. They also need to ensure that the auditor has an appropriately independent mindset from management and is truly objective.
Audit Committee Members should be Independent and Non-Executive. Independence is one of the cornerstones of the audit committee’s effectiveness, particularly when overseeing areas where judgements and estimates are significant. Audit committee members must be adept at communicating with management and the auditors and be ready to challenge and ask probing questions.
At least one member of the audit committee should have recent and relevant experience in finance, accounting or auditing. Members must be able to understand the rules and, more importantly, the principles underpinning the preparation of the financial statements and the auditor’s judgements. While financial literacy is a great asset for an audit committee member, not every member need have recent and relevant experience in finance, accounting or auditing. Indeed, there is great value in having committee members from diverse backgrounds who are not afraid to ask simple but direct questions.
Collective experience versus individual experience
While national rules or codes often stipulate that at least one member of the audit committee must possess the requisite financial experience organisations rely on the collective and diverse experience of the audit committee as a whole.
Skills, experience and personal attributes
In determining the composition of the audit committee, it is important to balance formal qualifications with consideration of personal qualities and relevant experience. What has been highlighted, since the 2007/8 financial crisis, is that there should be an appropriate balance of skills and experience on the board and audit committee to enable the board to discharge its duties effectively. Generally, an audit committee member should possess certain attributes such as: • integrity and high ethical standards; • strong interpersonal skills; • sound judgement; • the ability and willingness to challenge and probe; and • the time and personal commitment to perform effectively. Members should have experience pertinent to the business. A committee’s effectiveness is certainly enhanced by, and is often dependent upon, the member’s experience, knowledge and competence in business matters, financial reporting, and internal control and auditing. It is important that the audit committee is not reliant solely on management to provide it with such.
Regular rotation of audit committee members provides a practical way to refresh and introduce new perspectives to audit committee processes.
How can we help ?
At Fraudintegrity Simon Padgett has over 20 years of experience in Internal Audit and managing Audit Committee’s. He has been the Head of Internal Audit for two publicly quoted companies as well as Head of Internal Audit for the largest family owned conglomerate in The United Arab Emirates. In these roles Simon has acted on Audit Committees providing the inquisitive line of questioning and financial skillset required. Let Simon add value to your Audit Committee by providing international experience from a cross section of industries and an Independent, Non-executive approach and an efficient, effective and up-to date administrative function for arranging and controlling your Audit Committee meetings.