An audit committee is a group of independent directors appointed by a company’s board of directors to oversee the company’s financial reporting process and the audit of its financial statements. The audit committee is responsible for ensuring that the company’s financial statements are accurate and reliable, and that the company’s financial reporting processes are in compliance with relevant laws and regulations.
In the UK, audit committees are required by law for listed companies, which are companies whose shares are traded on a recognized stock exchange. For other types of companies, the appointment of an audit committee is generally considered good practice, but it is not required by law.
The audit committee should be composed of non-executive directors who are independent of the company’s management and have the necessary expertise and experience to perform their duties. At least one member of the audit committee should have expertise in accounting or auditing.
The purpose of the audit committee is to provide independent oversight of the company’s financial reporting process and the audit of its financial statements. This includes reviewing and approving the appointment of the external auditors, reviewing the results of the audit, and reviewing the financial statements and any related disclosures before they are published. The audit committee is also responsible for ensuring that the company has appropriate internal controls in place to prevent fraud and errors, and for reviewing the company’s risk management policies and procedures.
Overall, the audit committee plays a critical role in helping to ensure the integrity and transparency of the company’s financial reporting process, which is essential for building trust and confidence in the financial markets.