Essay About Audit Committee And Effective Audit Committee

Audit Committee
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The plan submitted by the client is effective as it fulfilled the requirement to establish an audit committee. To form an effective audit committee, it should have at least 3 members and all of them should be independence non-executive directors. The plan above shows there are 4 non-executive directors been proposed. Next, this plan is considered to be effective because of frequency of meeting. Based on the guideline of audit committee’s meeting, audit committee should meet at least four times a year and has authority to call additional meeting. In this plan, there will be 6 meeting during the financial year and additional meeting will be conducted in relation to special reports and activities. Besides that, audit committee stay involved with auditors make the plan effective. As mentioned in the plan, audit committee will review the works of both internal and external auditors and meet with them to discuss the matter pertaining to the audit. If necessary they will be invited to attend the meeting and senior financial management staff as well. Furthermore, the primary functions of audit committee included in the plan fulfilled the responsibilities stated in the written term of reference which assist the Board of Director in discharging its responsibility in relation to the protection of the entity’s assets, application of accounting policies and reporting of financial information to users of financial statement. (227 words)Further issue that need to be addressed is has at least one member with significant and relevant financial experience to ensure someone with appropriate skill can help when involved in specialised financial activities. Next, they should have a formal charter that set up the role, responsibility, composition, structure and membership requirement. Again, they should be given sufficient authority to access to the management and both internal and external auditor and rights to seek for additional information and explanation. Additionally, the term of reference should be stated clearly to avoid overlap of role for both management and audit committee. Other than that, audit committee should be paid for remuneration based on the responsibilities they bear as heavier responsibility should have higher pay. Moreover, formal process has to be provided to new members of audit committee to make sure they’re fully understand the responsibilities of audit committee (Leung et al. 2011)words)This comment is invalid because an audit committee must consist of only non-executive directors of whom majority are independent (Audit Committee Institute, n.d.). Neither the external nor the internal auditor should be a member of audit committee but both of them meet with the audit committee to discuss the matters about audit. The board should appoint a chairperson for audit committee that is an independent non-executive director and that person should not be the chairperson of the board (Leung et al. 2011). Although audit committees are appointed by the board, it is not recommended that member of the board serves as an audit committee. This is to make sure that the conclusion made by the audit committee is derived from an in depth independent analysis and free from any influences of the board members. (127 Words)20 May 2016 Board of DirectorsNorthstar Limited Jalan Simpang Tiga93350 KuchingSarawak MalaysiaDear Members of the Board:Audit committee is a selected number of members of the company’s BOD whose responsibilities include helping auditor remain independent. Members of auditor committee are not part of company management and they play a critical role in providing oversight and serving as a check and balance on a company’s financial reporting system. The main purpose of an effective audit committee includes providing independent review and oversight of a company’s financial reporting process, internal controls, independent auditors and ensuring that the appropriate of accounting standard are used. It provides a forum separate from management in which auditors and other interested parties can candidly discuss concerns. By effectively carrying out its functions and responsibilities, an audit committee can benefit an organization which ensure that the management are properly develops and adheres to a sound system of internal controls and that procedures are in place to objectively assess management’s practices and internal controls. Furthermore, effectiveness of internal and external audit functions can be improved and independence of the auditors can be facilitated. Other than that, audit committee can also foster ethical culture throughout the organization.For terms of reference of audit committee, the member of audit committee should be appointed by the chairman of the board. It must have at least 3 members and all members should be independent non-executive directors and at least one of them have significant financial experience. Furthermore, the chairman of the audit committee should be an independent non-executive director and the secretary of the audit committee is usually the secretary of the company. Only the members of committee are needed to attend the audit committee meetings unless been invited by the committee. Moreover, meeting need to be held at least 3 times a year. The main role and responsibilities of the audit committee should be clearly stated in written terms of reference and every year board and audit committee should review the terms of references and its effectiveness. If there is any changes they have to recommend to the board. (Financial Reporting Council 2015)