Question

In order to be effective, which type of executives should make up the majority of the audit committee members? Discuss in 30–50 words.

Answer 1

Audit committee is an operating committee of the board of directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the committee members.

Internationally, the audit committee is a committee of the board of directors responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external. The committee assists the board of directors fulfill its corporate governance and overseeing responsibilities in relation to an entity’s financial reporting, internal control system, risk management system and internal and external audit functions.

Hence the audit committee should consist of majority of executives having expert knowledge in the field of finance, internal and external audit, financial management and related areas. Also at least one person shall be independent.

As per the best practice as mentioned by institute of internal auditors, The audit committee will consist of at least three and no more than six members of the board of directors... Each committee member will be both independent and financially literate. At least one member shall be designated as the "financial expert," as defined by applicable legislation and regulation.