Question

Paragraph for each

1. Describe what an audit committee is and its function.
2. Describe specifically the requirements of the audit committee as discussed in Section 301 of the SOX Act of 200
3. Describe the external auditor’s required communications to the audit committee.  
4. Identify the reasons why audit committees have been formed and are currently in operation. Discuss what you feel may be best practices of audit committees to fulfill their role in corporate governance and to assist in preventing large financial failures or corporate fraud.

Answer 1

*Audit Committee:- An audit committee is one of the major operating committees of a company's board of directors that is in charge of overseeing financial reporting and disclosure. All U.S. publicly-traded companies must maintain a qualified audit committee in order to be listed on a stock exchange.

Function of audit Committee :- The function of a company's audit committee is to provide oversight of the financial reporting process, the audit process, the company's system of internal controls and compliance with laws and regulations.

*Requirement of audit committee as per Section 301 of SOX ACT:-

1. Te integrity of Financial Reporting

2. Compliance with Laws and Regulations.

3. External auditor qualifications, independence and performance

4. The Performance of the internal audit Function

*External auditor’s required communications to the audit committee:-

The auditor should communicate to the audit committee matters that are difficult or contentious for which the auditor consulted outside the engagement team and that the auditor reasonably determined are relevant to the audit committee's oversight of the financial reporting process.

*Audit Committee have been formed and are currently in operation due to following reasons:-

Responsibilities of the audit committee typically include:

1.Overseeing the financial reporting and disclosure process.

2.Monitoring choice of accounting policies and principles.

3.Overseeing hiring, performance and independence of the external auditors.

4.Oversight of regulatory compliance, ethics, and whistleblower hotlines

Best practices of audit committees to fulfill their role in corporate governance and to assist in preventing large financial failures or corporate fraud are:-

Audit committees are identified as effective means for corporate governance that reduce the potential for fraudulent financial reporting. Audit committees oversee the organization's management, internal and external auditors to protect and preserve the shareholders' equity and interests.