Audit Committees: The Standing Pillar of Corporate Governance
Audit committees are a pillar for boards of directors and a key standing entity that handles the process of conducting an organization’s annual audit. The primary purpose of the audit committee is to provide financial oversight and comprehensive reporting during the annual audit process. They also must stay in compliance with laws and regulations.
Audit committees are required by law for all publicly traded companies under the NYSE rules and regulations. Committee members are also in charge of handling and managing outside, independent auditors in conjunction with the Sarbanes-Oxley Act of 2002 which mandates that audit committees be directly responsible for the oversight of the engagement of the company’s independent auditor. Ultimately, this committee has a very complex and important role when it comes to the corporate governance of an organization.
The Foundations of Audit Committees
Although publicly traded companies are required to appoint an audit committee, it’s also a best practice for other organizations to enlist a group of individuals to oversee the audit process. The audit committee is chartered through the board’s bylaws and answer to the board of directors. Decisions regarding audit procedures and the process are made by the committee having the authority of the board itself.
Audit committees are primarily made up of board members specifically with financial backgrounds. The organization’s management team is usually excluded from this committee. Audit committees meet in person at least quarterly and also hold ad-hoc sessions when required. Their primary duty is to oversee independent auditors.
The Audit Committee and Independent Auditors
Audit committees collaborate to identify and appoint outside, independent auditors to conduct the annual audit process. They thoroughly vet, select, and recommend the independent auditing organization to the board. They also make the decision every year to either retain or terminate that entity.
This is an extensive task and is often met with resistance. Audit committees must anticipate interruptions in the accounting department, extensive questions, and procuring a number of documents and receipts. However, hard work leads to benefits for the future of the company.
HHM Accounting firm believes that companies who conduct annual audits are more profitable and better managed. “Experienced auditors have decades of experience with observing what great companies do well and what unprofitable companies do poorly,” says Jason Martin, Senior Manager at HHM. “Identifying small opportunities for improvement can be the key to a company’s profitable future.”
The Responsibilities of the Audit Committee
Audit committees function separately from that of the finance and budget committees and they have different duties, specifically when it comes to the annual audit process. Part of the responsibilities of the audit committee is to oversee the audit of the organization’s records and to review the final internal financial procedures.
Committee members work closely with the external auditor to compile documentation for review. They also review different approaches to the audit and handle coordination efforts with internal staff members. After the audit, members collaborate over the results and recommendations for the organization.
Audit committees have authority over their own budgets and the external auditors they appoint. They should also have control over financial reporting, IT security, and other operational matters that fall under their umbrella of responsibility to the organization. In fact, cybersecurity is a critical concern for audit committee members.
Secure Solutions for Audit Committees
Cybersecurity and risk management are a top concern for audit committees. “Financial reporting, compliance and risk management are subject to a number of hazards, especially when the company is a large organization with thousands of personnel and reporting systems stretching across the globe,” says Investopedia. “Exogenous threats such as cyber hacking are under the purview of an audit committee, making its job even more challenging.” One way that audit committees can mitigate risk when reporting on financial matters is to implement a secure board portal, like BoardBookit.
BoardBookit is a secure solution for financial reporting that mitigates the problematic cycle of global, disparate reporting procedures. Our secure portal houses all financial documents in a secure, state of the art platform. The cloud-based applications allow committee members to access financial documents any time, anywhere, from any device- even across the globe.
In addition, all of our mobile applications are Vericode Verified and maintain an SSAE-18 certification. BoardBookit users can be confident their information is stored without the threat of cyber hackers.
BoardBookit also provides an organized library for financial documentation that allows users to access, annotate, and collaborate over documents. Because BoardBookit is so secure and offers unparalleled organization, audit committee members can do their job more effectively.
Audit committees are a key figure in the corporate governance of organizations. The complex annual audit process can make their companies more profitable and help to strengthen management for the future. Furthermore, the implementation of a secure and organized solution, like BoardBookit helps to mitigate cybersecurity risk and promote global collaboration and engagement.
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