Question

“Audit committees do not prepare financial reports, nor do they conduct audits. But they have an essential role to play in ensuring the integrity and transparency of corporate reporting” – explain what is the role of an audit committee in ensuring the integrity and transparency of corporate reporting? Is an audit committee mandatory in Australia?

Answer 1

An audit committee plays a very important and significant role in ensuring the integrity and transparency of corporate reporting. Audit committee provides oversight of the financial reporting process within an organization. It also provides oversight with regards to the audit process and the system of internal control and compliance with legal and regulatory requirements. All these, on a combined basis, ensure higher level of integrity as well as transparency. The audit committee ensures integrity and transparency of corporate reporting by serving as a key link between a company’s management, a company’s board and a company’s external auditor. Audit committee also boosts independence of internal and external auditors and this bolsters the level of corporate reporting. Audit committee provided enhanced level of focus on corporate governance and this in turn augments the level of integrity and transparency within an organization.

An audit committee is mandatory in Australia only for listed companies. The Parliament of Australia states that listed companies in Australia should be required by law to establish an audit committee. The Directors of a listed company have to establish and maintain an audit committee.