Audit Committee

Credible numbers lead to credible management

/ Finance / Audit Committee

Audits may not be sexy, but a smooth annual audit shows your board, lenders and auditors that you have your financial processes and systems in place, which builds confidence.

Hire a finance expert
Book a 15 Minute Call

Audit Committee Purpose

The Audit Committee’s charter or purpose includes the following:

  • PROCESSES – Help the Board of Directors oversee the organization’s corporate accounting and financial reporting processes. This includes internal controls, auditing financial statements and overseeing the integrity of the company’s financial reporting.
  • AUDITORS – The Audit Committee also oversees the selection, fees, qualifications, independence and performance of the independent, outside auditors. The auditors must be from a registered public accounting firm. Responsibility for auditors also includes overseeing the company’s internal audit function if it has one or once it is established and operating.
  • COMPLIANCE – Help the Board oversee the company’s legal and regulatory compliance. This includes reviewing any reports and disclosures required by the SEC and stock exchange (if applicable).
  • REPORTS – The Audit Committee provides regular reports to the Board regarding any material issues.

Audit Committee Authority

The Audit Committee has access to all of the company’s accounting systems, including books, systems and even accounting people, such as the controller and accounting managers, for information and records.

The Audit Committee chairperson also has the authority to retain outside service providers and advisors they deem necessary, such as legal and accounting firms.

Audit Committee Ground Rules

Your success in dealing with your audit committee can be captured in two words: “No surprises.”  You can pave the way to smooth interactions with some pro-active pre-planning.

You will first want to understand the audit committee’s audience, goals and rules of engagement.  The Board establishes the Audit Committee to help the Board to oversee the company’s control environment.

Special emphasis is on three areas: internal controls and financial reporting; the qualification and independence of the independent external auditors; and the performance of the company’s internal audit function and of external auditors.

You will want to come to some agreement on key issues such as the definition of materiality.  For example, you want to make sure there are no discrepancies in understanding of revenue recognition policies.

Audit Committee Reporting Structures

In understanding reporting structures, you’ll want to know whether or not the internal auditors have direct functional reporting to the audit committee and an indirect line to management for administrative activities.

You’ll also want to be involved with the internal audit risk assessment and audit plans, including activities and objectives regarding Section 404 compliance, if applicable.

Audit Committee Chair

The audit committee chair plays a critical role in creating effective audit committee (AC) meetings, setting priority and checklist items, ensuring the quality of premeeting materials, aligning the audit committee with other board activities, understanding risk within the business and supporting the CFO.

The AC chair also has tremendous cultural influence on the committee’s work load, style, tone and attentiveness. The best AC chairs understand the committees duties and each player’s responsibilities. She is readily available for additional insight into urgent matters and controls mission creep to ensure that she or the committee do not take on too many responsibilities, such as in the area of risk management, that interfere with their charter.

Audit Committee Chair and CFO Relationship

For both the Audit Committee chair and the CFO, a strong, healthy relationship is critical. This may require informal time spend together to build rapport and to fully understand long-term financial performance goals and between-meeting developments. From the CFO’s standpoint, this is a most important relationship and you will want a “meeting before the meeting” with your Audit Committee Chair.

Another best practices is to schedule regular meetings in the middle of field work and prior to the year-end audit committee meeting

Best Practices

Completing Schedules

You’ll want to make sure your schedules are done – ideally before the auditing firm is developing their audit plan.

Identify Potential Issues

Also, start your own forward-looking identification of potential issues such as new accounting and reporting requirements.

Goal Setting

Provide input to management’s goal setting, and provide you own clear objectives and expectations for each meeting.

Year-End Agenda

Collaborate to develop and agenda for year-end audit committee meeting.  You’ll both want to the meeting to run smoothly to reflect well on you both.  Start by establishing and agreeing to all agenda items for discussion

What would most improve your committee’s overall effectiveness?

Better understanding of biz and risks: 39%
Additional expertise (e.g. cybersecurity): 31%
Willingness to challenge management: 27%
Diversity of thinking, background: 24%
Deeper financial reporting & audit expertise: 19%

Source: KPMG

Case Study

Questions? Call Us or Email

If you’ve never outsourced or used executives on demand before, you’re sure to have a lot of questions. Don’t worry, we’re more than happy to answer them all.
And we know everything there is to know about this unique model. Schedule a call with us now.

Schedule a 15 Minute Call
Send Us an Email