Roles and Responsibilities of Audit Committee in Corporate Governance and Ethics

Running head: AUDIT COMMITTEE 0
Corporate Governance and Ethics
Roles and Responsibilities of Audit Committee

AUDIT COMMITTEE 1
Table of Contents
Introduction................................................................................................................................2
Composition and Qualification Requirements...........................................................................3
Duties of the Auditors................................................................................................................4
Need for Independence of Audit Committee.............................................................................5
Disclosure requirements of Audit Committee............................................................................5
Auditing Standards to be followed.............................................................................................6
Relationship between the board and the audit committee..........................................................7
Regulations of Auditors.............................................................................................................7
Public Interest of the Auditor.....................................................................................................8
Conclusion..................................................................................................................................9
Bibliography.............................................................................................................................10

AUDIT COMMITTEE 2
Introduction
Corporate governance is referred to a system of processes, regulations and practices based on
which a company is directed and controlled. It focuses on balancing the interest of different
stakeholders of a corporation such as employees, shareholders, customers, financiers,
government, suppliers, management and community1. It intended to increase the
accountability of a company which assist in avoiding major business crisis before their
occurrence. The significance of corporate governance has increased substantially especially
with the continuous worldwide financial crises. The audit committee is referred to a central
pillar of effective corporate governance in companies. It offers management an effective
oversight of the performance of the corporation based on independence and objectivity of the
auditors and the overall quality of the audit2. The aim of this report is to evaluate the role and
responsibility of an audit committee in the corporate governance. This report will focus on
analysing the composition and qualification requirement of members of an audit committee
and examine their duties. This report will discuss the significance of independence and
disclosure requirements in audit committee and evaluate the auditing standards which are
required to follow by auditors. Furthermore, the relationship of the board with the audit
committee will be evaluated along with the auditors’ role in the public interest.
1 Wendy Beekes, Philip Brown and Qiyu Zhang, "Corporate Governance And The Informativeness Of
Disclosures In Australia: A Re-Examination" (2014) 55(4) Accounting & Finance.
2 Yousouf Khan Hansye, "The Audit Committee: A Gatekeeper For Effective Corporate Governance"
[2012] SSRN Electronic Journal.

AUDIT COMMITTEE 3
Composition and Qualification Requirements
According to the Auditing and Assurance Standards Board (AUASB), the audit members
should have a balance of technical experience, professional skills and knowledge along with
independence, objectivity and sufficient capacity to discharge the audit committee’s
obligations and responsibilities as provided in the charter3. Section 4.1 provides the
provisions regarding the structure of the audit committee. The CEO or the managing director
should not be a part of or the member of the audit committee, although it is normal that the
CEO is invited to the meetings of the audit committee4. The board has the right to appoint an
independent person who is not appointed as the director to provide particular expertise
regarding the audit committee. Following qualities are the key qualification for audit
members in the audit committee:
 An independent mind-set
 Understanding of the industry, business, product/services and the entity
 Strong communication skills
 High level of integrity and ethics
 Sufficient time for executing responsibilities
 Financial literacy to read and understand financial accounts and statement
The audit committee should have:
 One or more than one members that have the expertise in finance field and experience
which they collected by being an accountant or other financial experts of any other
profession relating to finance and accounting5.
 A mix of experience and skills which are required for discharging responsibilities
which include risk management, international commercial background, experience in
business and financial and legal compliance
The audit committee comprised of board members who include independent or non-executive
directors, however, the board can hire an external member, and they may be a former board
3 Audit Committees A Guide To Good Practice (2018) Auasb.gov.au
<http://www.auasb.gov.au/admin/file/content102/c3/04-17_AI_6.1-Final_Audit_Committee_Guide.pdf>.
4 Audit Committee (2018) Aph.gov.au
<https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/
Completed_inquiries/1999-02/complawreview/report/c10>.
5 Audit Committee Charter (2018) Iia.org.au
<http://www.iia.org.au/sf_docs/default-source/about-iia/Audit_Committee_Charter_Final_May_2012.p>.