Audit Committee

Audit Committee

A committee responsible for reviewing its own company's business activities to identify inefficiencies, reduce costs, and otherwise achieve organizational objectives. Audit committees may investigate potential theft or fraud and ensure compliance with applicable regulations and policies. They also assist in risk management. In a large company, especially a publicly traded one, the audit committee is independent from any management and is answerable only to the board of directors. See also: Internal audit.

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audit committee

A subcommittee of a corporation's board of directors that selects the firm's external auditors. The audit committee is responsible for hiring the auditors, resolving disputes with the auditors, and evaluating and disclosing the auditors' reports.

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Audit committee. The corporate audit committee is the liaison between the company's management, the board of directors, internal and external auditors, and any other accounting experts advising the company on audit issues.

In particular, the audit committee is responsible for hiring and managing external auditors. Since 2002, when Congress passed the Sarbanes-Oxley Act, implementing stringent financial oversight regulations, the role of the audit committee has become increasingly important.

An audit committee is composed of a subgroups from the corporation's board of directors. Members of the audit committee must be independent, which means they have no ties to the company's management team.

In general, they cannot receive any compensation, such as consulting or advisory fees, except for a board of director's fee. They may not be able to own shares in the company or be affiliated in any other way with the company. Nor can they be affiliated with or have an interest in the external auditing company.