Audit Committee | Advantages of Audit Committee | Disadvantages of Audit Committee

Role of an audit committee 

 The main role of an audit committee is to give oversight of the internal control and audit function of the organization, particularly the audit function s process, the overall auditing process, and regulatory requirements. 

The audit committee is also likely to review specific accounting and regulatory matters and recent cases that have come before it and make recommendations. The members of the audit committee must be well versed in accounting principles and the major aspects of accounting practice and should be capable of communicating clearly and effectively with the CPA. 

The members of the committee should understand the major areas that will be reviewed during their deliberations. The audit committee does not have the same responsibilities as other committees. The duties of the audit committee are to ensure that senior management understands the risks and benefits of all major activities and to devise plans for achieving this understanding.
Audit Committee | Advantages of Audit Committee | Disadvantages of Audit Committee

 The audit committee may conduct periodic reviews of the organization's management policies, procedures, and practices.  The audit committee is generally made up of five independent members: one member is the CPA who chairs the board; two members are senior executives from accounting who report to the CPA; one is a member of the accounting profession with at least three years of experience in accounting or business, and two are independent accountants.  

 The members of the audit committee should not act in an attempt to impede or alter the work of their colleagues, as they have no managerial authority to do so. The audit committee should assist the CPA in developing policies and procedures, as well as in providing advice on the operation of the business and on internal controls over the organization. If the CPA does agree with the recommendations of the audit committee, they will jointly report their findings to the CEO, company CFO, and the Board of Directors. 

 Audit oversight is an important and necessary part of the CPA's job as an independent auditor. As a result of that oversight, companies that employ accountants are subjected to the risk of fraudulent billing practices. Other types of risks associated with internal control and assurance systems include inaccurate forward booking of assets, improper understated income, ineffective supervision of third-party payment channels, inadequate compliance measures, and information security breaches. Such risks are inherent in the complexity of a complex organization.

 A company that is unable to effectively and efficiently manage its internal and external control environment is prone to risks such as information security breaches, employee fraud and employee burn-out

. The audit committee plays a significant role in providing oversight and policy direction for the CPA. Its responsibilities include providing reports and recommendations to the management, including the CEO, to senior management on the status of the CPA's duties and the results of those duties. The committees must take into consideration any special circumstances that require immediate action by the company. 

The members of the audit committees must also report findings of their audits to the Board of Directors, the management of the business, and key personnel to the extent feasible. 

 There are certain steps required to be followed when the internal and/or external auditor is rendering his or her services to an organization. 

First, when engaging an external auditor, it is important for the CPA to prepare a written evaluation and supporting documents.

 Second, an internal and/or external auditor is required to sign an agreement that details the services to be provided. The agreement also outlines the fees that will be charged by the external auditor and stipulates the date on which the services will be rendered. 

Advantages of audit committee

The advantages of the audit committee are clear. The most obvious one is that it helps to foster a better atmosphere between the audit committee and the audit manager. This is because the members of the committee will have more involvement in ensuring that the objectives of the audit are met, and this means that they can properly question the audit manager concerning matters that may be outside the scope of their mandate as members of the audit committee. 

 Another advantage is that it helps to maintain control and independence since the members of the audit committee have the opportunity of participating in the development of the audit plan, rather than having to rely on the advice of the audit manager. 

This also ensures that control is maintained since there are fewer voices demanding influence over their decision making. The independent character of the audit committee helps to build credibility and trust within the organization. 

This means that it is likely that the majority of members will follow the guidelines and recommendations of the audit committee, rather than following the lead of the audit manager. If there is a need to make changes to the structure or the function of the committee, this will occur through discussion with the members of the committee, rather than through the medium of the management.

 The advantages of audit committees extend beyond their ability to provide greater accountability for the water audit report. Audit committees are also able to provide better policy options and guidance. There are a number of policies that exist within water audits. 

Most of them focus on prevention, detection, analysis, and resolution. With such a focus on prevention, it is much easier to identify problems before they become problems, and therefore, it is much easier to resolve problems once they have become a problem. 

Since there are numerous approaches to detecting problems, and even differing strategies for dealing with the issues that do arise, this focus provides a much clearer focus than that provided by the management. 

 Finally, the experience and expertise provided by audit committees help to ensure that any internal audit work is carried out in an efficient manner. Internal audit work is often quite sensitive since it involves the reputations of those who are performing the audit work. 

It is important for any internal audit report to be completely accurate. However, if the audit work is done through a committee, not only will the information be subject to more consistent internal audit reviews, but there will also be a greater incentive to ensure that the internal audit report is as comprehensive as possible.  Another of the many disadvantages of having an external audit committee is the fact that the members are not subject to the same confidentiality requirements that apply to the staff of the internal audit department. Since all information and opinions are confidential, it would be easy for one or more of the non-executive directors to leak information to the press or competitors. This could seriously damage the reputation of the organization, especially if it was known to have been leaked by a disgruntled employee or even a competitor. 

Disadvantages of audit committee

Another disadvantage is that there is no opportunity for the members to make amendments to the procedures, which might be required if they become aware of material concerns that weren't disclosed by the organization. 

 Some companies have used internal audit committees in order to minimize exposure to external audit risks. In some instances, the employment terms of the company might prevent the need for an external auditor. Also, the size of the organization may require an independent external auditor, which can be a costly and time-consuming process. 

Some companies have chosen to use the services of an accountant or a CPA to perform the audits instead, which may be less expensive but not provide as much scope for an in-depth examination of the organization's activities. There is also the disadvantage that the expertise of these people is limited, which means that they might miss items that an accountancy firm can easily see. The disadvantages of having an audit committee are only a few. One can look at it from a different perspective.

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