The Role Of Audit Committee

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Audit committee was a standing committee that oversees key objectives of the company such as financial reporting, internal control, and audits to be in compliance with laws and regulations, and also help set an ethical tone at the top. The committee’s main role was to control and review the company effectiveness. Audit committee included a selective list comprising of three, five or seven directors who were not a part of the company management. Each audit committee should have at least one member as financial expert, as defined by SOX. Audit committee should be composed of entirely independent members of the Board of Directors (members may not accept any consulting, advisory, or fee from the company).
Role of Audit Committee:
1. Risk Assessment
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It makes sure that a risk management process was put in place which identifies and manages the company’s risks that includes identification and management of financial risks that can affect its financial reporting. In addition, there were cases where the audit committee had been asked to review the degree of assumed ownership by the management, risk management strategy, and process to address them and their effectiveness. Another key role was to make sure proper control policies were in place to have effective compliance with laws, regulations and operational controls. It makes sure that the system of internal control designed by the management is effective and functioning well. Audit committee oversees the internal audit department and periodic reporting which includes summarizing any significant issues including internal control weaknesses.
2. Oversee financial reporting
The audit committee monitors the financial statements integrity and company’s financial performance prior to any formal release. The committee ensures that all its members were aware of the accounting policy and disclosure issues upfront to take proper action if needed. Key functionalities includes the following,
a. Understand & assess management’s selection of accounting principles & critical ones, judgements and accounting estimates reported in the financial
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Audit committee expects the external auditors to figure out all material errors and instances of frauds which is nearly impossible.
Accounting Scandals due to External Auditors:
Corporate accounting scandal frequency in the last past decade is alarming and has caused the public to question the role of the auditors in corporate governance. The numerous cases of corporate scandal have created crisis of confidence in the accountancy profession. Though not every case of corporate scandal and failure can be attributed to auditing failure or auditor’s negligence, some high profile cases as Enron, WorldCom, Parmalat, AIG, Xerox, Adelphia, Lehman Brother etc. were substantially linked to audit failure (Coyle,

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