A brief guide to effective audit committees
An effective audit committee isn’t simply compliant with relevant codes and regulations.
It treats effectiveness as an ongoing exercise to help it head off key risk threats and add the maximum value.
Principles and approach
The key UK codes of most interest to audit committees are both issued by the Financial Reporting Council (FRC), namely:
- the UK Corporate Governance Code; and
- Guidance on Audit Committees.
These codes require a ‘comply or explain’ approach, which is intended to allow for a degree of flexibility in committee arrangements depending on the organisation and its context.
Other codes and regulations may apply depending on the organisation.
Areas within audit committee remit
According to the FRC, key areas that should be within the audit committee’s remit are:
- financial reporting;
- narrative reporting;
- internal controls and risk management systems;
- the internal audit process;
- the external audit process; and
- communications with shareholders regarding its activities.
Specific areas to pay attention to when considering the effectiveness of the committee include:
- appointments to the committee;
- the frequency and attendance of meetings;
- the resources to be made available to the committee;
- the skills, experience and training of the committee members; and
- the relationship between the audit committee and the board.