Question

Since there was lot of complaints from external auditor and regulatory authorities about the financial irregularities in the company last year, management decided to form an audit committee. Since all the prospective members of the committee are new and less experience, they asked your advice to set the role and responsibility of the members. The company appointed Mr. Said as the chairman of audit committee with four other members.

You are required to answer the following question.

1. Do you think the responsibility of audit committee is limited to matters relating to audit? Give reason for your answer.​​​​​​​​​​​​

2. How do an audit committee ensure fair presentation of financial statement of a company?​

3. Do you think an audit committee must be independent? Give reason for your answer.​

Answer 1

1. The role of an audit committee is not restricted to audit, it is for much more and we can say that audit committee is a very important tool to ensure proper presentation of financial statements as well as independence of auditor. They play a role in the appointment of auditor and ensure that the audit is carried out without any illegal transactions.
2. The audit committee will review the financial statements prepared by the management and suggest the management with presentation framework, they overlook the work of the Management and ensure the proper preparation of financial statements.
3. The audit committee should be independent, as the Audit committee is meant to check the work of management, they should be independent so that the management will not influence them.