Thought leadership paper reviews the role of the audit committee

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Key Points

  • The Institute has partnered with the UK Financial Reporting Council and our Scottish counterpart to bring the latest thought leadership paper on audit committees to members
  • Investors’ demand for transparency and corporate accountability in capital markets has placed the function of the audit committee in the spotlight
  • The paper finds that audit committee members are aware of and fully embrace their responsibilities as a sub-committee of the board.

Audit committee chairmen are aware of their obligation as a sub-committee of the board and understand the knowledge and accountability required to operate effectively.

This is a clear sentiment resonating among audit committee chairmen interviewed as part of the Institute’s latest thought leadership paper, Walk the line: Discussions and insights with leading audit committee members.

The function of the audit committee has come under the spotlight in recent times as a result of increased government intervention and the expectation for greater transparency and corporate accountability by the investor community. Produced in conjunction with the Financial Reporting Council (FRC) in the United Kingdom and the Institute of Chartered Accountants of Scotland, the paper provides insights from a series of interviews with audit committee chairmen of publicly listed companies about the role and challenges facing audit committees.

Some of the challenges identified include:

  • Unrealistic expectations
  • Communications to bridge the expectation gap
  • Legal responsibilities and liabilities
  • Keeping the flow with new members
  • Quality of information
  • Knowledge of accounting standards.

Institute CEO Lee White FCA says, 'The audit committee essentially runs a balancing act between its oversight function and maintaining its relationships with colleagues. The paper finds there is great emphasis on audit committee chairmen forging relationships internally and externally to help inform them of the company’s activities.'

The paper examines the different relationships audit committees form with the board, management, external auditor and shareholders. It concludes with a series of questions for audit committee members to reflect on.

The findings and thoughts arising from the paper were discussed at a closed-door event held on 13th February in Sydney, attended by regulators, standard setters and members of the business community and capital markets, including CEO of the UK FRC, Stephen Haddrill.

Article last updated 7 September 2012

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