What is an 'Audit Committee'

An audit committee is one of the major operating committees of a company's board of directors that is in charge of overseeing financial reporting and disclosure. All U.S. publicly-traded companies must maintain a qualified audit committee in order to be listed on a stock exchange. Committee members must be made up of independent outside directors, including a minimum of one person who qualifies as a financial expert.

BREAKING DOWN 'Audit Committee'

Audit committees maintain communication with the company's chief financial officer (CFO) and controller. The audit committee's role includes the oversight of financial reporting, the monitoring of accounting policies, the oversight of any external auditors, regulatory compliance and the discussion of risk management policies with management. The committee also has the authority to initiate special investigations in cases where it is determined that accounting practices are problematic or suspect, or when serious issues arise with employees. An internal auditor would assist the committee in such efforts.

The duties and composition of a company's audit committee can be found in SEC Form DEF 14A, or proxy statement.In Alph abet's (a.k.a. Google) 2017 proxy statement, Robert W. Ferguson, Jr., Ann Mather and Alan R. Mulally are listed as the audit committee members. Their qualifications to carry out the duties are also highlighted. Committee members may change from time to time, depending on the movement of personnel on or off the board or change of committee assignments. An audit committee will meet in person at least quarterly and on an ad-hoc basis in person or via telecommunications. In 2016, Alphabet's audit committee met six times. Aside from annual compensation for directors, those who serve on an audit committee (the same applies for all committees) are paid for each meeting attended.

Audit Committee Hazards

The audit committee must take its responsibilities very seriously. Financial reporting, compliance and risk management are subject to a number of hazards, especially when the company is a large organization with thousands of personnel and reporting systems flung across the globe. Exogenous threats such as cyber hacking are under the purview of an audit committee, making its job even more challenging. Cybersecurity should be an increasing focus for audit committees in corporate boardrooms everywhere.

RELATED TERMS
  1. Auditing Evidence

    Auditing evidence is information collected to review a company's ...
  2. Audit

    An unbiased examination and evaluation of the financial statements ...
  3. Audit Cycle

    An audit cycle is the accounting process that auditors employ ...
  4. Statutory Audit

    A legally required review of the accuracy of a company's or government's ...
  5. Audit Department

    An audit department is a unit within a company that is responsible ...
  6. Unqualified Audit

    An unqualified audit is a complete audit that has been performed ...
Related Articles
  1. Taxes

    Your Chance of a Tax Audit Is the Lowest in Years

    The risk of a tax audit, for you or your company, is the lowest in years, but that doesn’t mean you should skirt the law or stop keeping records.
  2. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  3. Taxes

    What To Do If You Get Audited

    If you're in the minority of those that get audited, find out how to prepare and how to handle the process.
  4. Personal Finance

    A Day In The Life Of An Auditor

    If you like the idea of examining and attesting to a company's financial performance for a living, a career in auditing might be right for you.
  5. Insights

    IT Security Auditing

    Find out about this promising career that can match IT with business studies.
  6. Taxes

    Audit Stories You Won't Believe

    Take comfort: Even if you do get audited, you'll have an easier time that these unlucky taxpayers.
  7. Insights

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  8. Taxes

    Should You Be Worried About a Tax Audit This Year?

    Tax audits have decreased in recent years and are targeted toward high earners and business owners.
  9. Taxes

    Avoid an Audit: 6 "Red Flags" You Should Know

    Don't make yourself a target - steer clear of these attention-grabbing tax-filing practices.
  10. Taxes

    How To Appeal Your IRS Audit

    The auditor's review isn't always the last word. Many taxpayers who are audited can successfully appeal their audits and save thousands of dollars.
RELATED FAQS
  1. What is impact of Sarbanes-Oxley Act?

    Here is a detailed rundown of the provisions of the Sarbanes-Oxley Act, including strict disclosures, criminal liability ... Read Answer >>
  2. What are some examples of inherent risk?

    Read about the nature of inherent risk in preparing and executing financial audits, including some common situations that ... Read Answer >>
  3. What is the difference between "hard money" and "soft money"?

    Hard money and soft money are terms that are often used to describe coin money and paper money, respectively. However, these ... Read Answer >>
  4. Who enforces GAAP?

    Take a deeper look at the private enforcement mechanisms behind the generally accepted accounting principles for American ... Read Answer >>
  5. How did Sarbanes Oxley (SOX) affect the rules and regulations for account reconciliation?

    Read about the various regulations and impositions of the Sarbanes-Oxley Act of 2002 on account reconciliation for publicly ... Read Answer >>
Hot Definitions
  1. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  6. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
Trading Center