Does your organization have an audit committee? Have you ever considered proposing the implementation of one to your board of directors? Let’s take a closer look into audit committee responsibilities and why having one can be important for your business.
Audit Committee…What is It?
An audit committee is an operating committee of the board of directors charged with oversight of financial reporting and disclosure. Audit committees are typically empowered to acquire the consulting resources and expertise deemed necessary to perform their responsibilities. The audit committee should:
- Approve the selection of the auditor
- Review the audited financial statements and the management comment letter from the independent auditor
- Provide audit oversight by meeting with the auditor before the audit fieldwork begins, after fieldwork concludes, and after the audited financial statements are issued so that any issues and/or concerns can be discussed openly with someone other than management
- Periodically review and assess internal processes and controls of the organization
- Monitor the choice of accounting policies and principles made by management to ensure their compliance with generally accepted accounting principles and auditing standards
Essentially, an audit committee’s role is to assess and monitor the overall financial risk process of the organization. This role can be expanded based on the size and complexity of the organization. In the Fall 2009 Audit Committee Roundtable Report, the KPMG Audit Committee Institute reported that of the 1,200-plus board members and business executives surveyed, audit committees have primary oversight of risks as follows:
- 70% Financial risks
- 63% Legal/regulatory compliance risks
- 58% IT security and privacy risks
- 27% Operational risks
- 18% Strategic risks
- 12% HR/labor risks
What can an audit committee do for me?
As you can see, an audit committee can and should do much more than meet with your auditors to go over the annual audit results. The committee should be charged with making sure the organization has the effective controls and policies in place to minimize risks that could have a detrimental impact on the organization. In addition, for nonprofits, the audit committee can help ensure the organization has strong board governance to comply with IRS “recommended” guidelines. It can also influence an increasingly skeptical public and donor pool as they decide where to send their discretionary dollars.
In summary, if your organization is independently audited, you should consider having an audit committee. The board of directors is responsible for ensuring that the organization’s finances are conducted legally, ethically, and in accordance with proper accounting rules. Chartering an audit committee that has the required expertise to monitor the financial reporting of the organization can provide an important oversight mechanism for the board.
Give us a call if you have any questions or would like to discuss the role of an audit committee in more detail.
Related Links
10 To-Do’s for Audit Committees in 2010
AICPA Audit Committee Toolkit for Not-Profit Organizations
About Blackman & Sloop CPAs, P.A.:
Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com
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