Role and Functions of an Audit Committee

This assignment delves into the responsibilities and functions of audit committees within a company. It outlines their objectives, including overseeing financial reporting, auditing processes, and risk management practices. The document also examines the composition of audit committees, their interaction with internal and external auditors, and the importance of independence in fulfilling their duties. Furthermore, it discusses legal requirements regarding audit committee formation and operation as defined by relevant company acts.

Running head: ASSESSMENT 2: WRITTEN REPORT TO THE BOARD 1
Assessment 2: Written report to the Board
Institution Affiliation
Name

ASSESSMENT 2: WRITTEN REPORT TO THE BOARD 2
Assessment 2: Written report to the Board
In several companies, directors often have the responsibility to ensure the company’s
prosperity by collectively gathering the firm’s affairs while meeting the suitable interest of its
shareholders and stakeholders. In such situations, the directors have much concerns about the
amount of diverse resources being allocated to the monitoring process (Cohen, Hoitash,
Krishnamoorthy, & Wright, 2013). This aspect is because the company directors often need
to ensure that the products and services meet the required standards and quality so as to keep
their customers. Poor production of goods and services often affects customers that may
result to shift. The amount of resources being allocated to the monitoring process should not
be more than the required because it may affect the entire process (Soh, & Martinov, 2012).
Thee directors also have the responsibility of ensuring that the correct amount of resources
are allocated so as to reduce waste and thus enhance the company in increasing or maintain
its profits.
Objectives of the audit committee
The audit committee is considered to be an operating team of the board of managements that
are basically charged with the oversight of financial disclosure and reporting. The main
objective of the audit committee is basically to assist the board of directors in meeting its
roles that relate to reporting and accounting practices of the firm and its subsidiary firms
(Hashim, & Abdul, 2011). This is important because it enabled the company performs its
duty of providing quality goods and services in accordance with the set guidelines and the
rules. Another objective is that the audit committee is mandated to oversee and appraise the
quality of audits carried out both by the firm’s external and internal auditors so as to provide
unqualified audit reports.
Another objective of the audit committee is to offer independent assurance and assistance to
the company board of risk management, governance, control and external accountability

ASSESSMENT 2: WRITTEN REPORT TO THE BOARD 3
roles. This aspect is vital because it usually guides the board of management on carrying out
their respective duties in accordance with the set rules. Audit committee also have the
objective of maintain open lines of communication between company external auditors, board
of directors, and the internal auditors for the exchange of information and views in addition to
confirm their respective responsibilities and authorities (Li, Mangena, & Pike, 2012).
Basically, it is the duty of the of the audit committee to ensure smooth transition of
communication between the respective members of the company external auditors, board of
directors, and internal auditors
The audit committee also has the objective of determining the adequacy of the company
administrative accounting, and operating controls.
Terms of reference for the committee
Diverse companies are mandatory to go through a prescribed procedure of considering their
control procedures and internal audit considering the efficiency of the external audit process
and supervision the liaison with their external auditors (Hashim, & Abdul, 2011). As a clear
part of this particular procedure, it is useful that the audit team is suitably instituted with a
clear responsibility and acknowledged authority and that it contains procedures in place to
allow directors that serve on audit committee to carry out their respective roles. Basing on the
relevance of this aspect, I recommend that;
 The audit committee must be provided with sufficient resources so as to undertake its
diverse duties (Soh, & Martinov, 2012).
 The list of duties should also be included in the engagement letters so as to reduce the
possibility of any misrepresentation that may arise.
 All audit members shall be independent
 The audit team shall be accountable for establishing the conditions for selection,
employing and setting the conditions of reference for any external body.

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 The audit team members shall be appointed by the board among the non-executive
members and shall entail of not less than 3 members.
 The audit committee should often meet to undertake its roles effectively and schedule
to meet not less than four times annually (Soh, & Martinov, 2012).
Who constitutes the audit committee?
Section 94 of the Company Act defines the audit team and must at least consists of 3
members, and each member of the committee should be a company director with independent
executives being the majority (Soh, & Martinov, 2012). The majority of the audit team
member that included chairperson will be a person with the capability to read and
comprehend the company financial reports. The boards statements under section 134 (3) must
reveal the audit team composition and where the panel had not established any reference of
the audit team, the similar aspects must be revealed in such statements along the
explanations.
The interaction between the audit committee and both the internal and external audit
functions
In this case, the audit committee has the reasonability of offering the required information by
the both the internal and external audit functions in the company. Audit committee plays a
major role in corporate governance that regards to the organization control, direction, and
accountability. Audit committee basically fosters the effective relationship among the three
groups y ensuring that each group of embers get all the requested information that facilities
their duties. Successful organizations often recognize the importance of building effective
relationship among audit committee, external and internal auditors groups (Soh, & Martinov,
2012). The audit committee will communicate with either the internal audit members to
confirm if there is any information that is needed for their work and thus enhancing their
overall relationship. External auditors, on the other hand, may communicate to the outgoing

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auditors under the assistance of the audit committee to seek their reasons for disengaging
with the clients as this is often important duty for the incoming auditors.

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References
Cohen, J. R., Hoitash, U., Krishnamoorthy, G., & Wright, A. M. (2013). The effect of audit
committee industry expertise on monitoring the financial reporting process. The Accounting
Review, 89(1), 243-273.
Hashim, U., & Abdul Rahman, R. (2011). Audit report lag and the effectiveness of audit
committee among Malaysian listed companies. International Bulletin of Business
Administration, 10(1), 50-56.
Li, J., Mangena, M., & Pike, R. (2012). The effect of audit committee characteristics on
intellectual capital disclosure. The British Accounting Review, 44(2), 98-110.
Soh, D. S., & Martinov-Bennie, N. (2011). The internal audit function: Perceptions of
internal audit roles, effectiveness and evaluation. Managerial Auditing Journal, 26(7), 605-
622.