An audit committee is tasked with overseeing the review and audit of the organization’s books and records, financial reporting, and compliance reporting. The audit committee’s duties include reviewing the work of the Executive Director, as well as selecting the independent external auditor, reviewing the independent auditor’s work, and (if necessary) dismissing the independent auditor. The audit committee should consist of non-board members. The two main requirements for an effective audit committee are:
- Financial expertise, and
- Independence from management.
1. Financial Expertise
The audit committee must have enough financial expertise among its members to conduct meaningful review of the organization’s financial statements and the work of the independent, external auditor. A single committee member may have this expertise, or the various members may have complementary skills and experience that, in combination, enable the committee to fulfill its purpose. The committee must not rely on the organization’s chief financial officer or independent auditor to conduct the committee’s oversight duties.
2. Independence from Management
The audit committee is generally charged with overseeing the officers and managers of the organization in their financial duties. For this reason, the committee must be able to review and investigate matters within its purview without the influence of officers, managers, or employees of the organization. To achieve this independence, the audit committee should report only to the board, and should conduct its reviews and meetings in private. The committee members or their family members and close business associates should not have any financial interest in the organization and should not be compensated by the organization.
Updated January 2018