Audit committee

From Freepedia

An audit committee is an operating committee of a publicly-held company. Committee members are normally drawn from members of the Company's board of directors. An audit committee usually has a number of independent or outside directors.

Responsibilities of the audit committee typically include:

• Overseeing the financial reporting process.
• Monitoring choice of accounting policies and principles.
• Monitoring internal control process.
• Overseeing hiring and performance of the external auditors.

The U.S. Securities and Exchange Commission (SEC) first recommended that publicly held companies establish audit committees in 1972. The stock exchanges quickly followed by either requiring or recommending that companies establish audit committees. Over the years, various initiatives to strengthen and increase the responsibilities of audit committees have been made.

In 2002, the Sarbanes-Oxley Act increased audit committees’ responsibilities and authority, and raised membership requirements and committee composition to include more independent directors. In response, the SEC and the stock exchanges proposed new regulations and rules to strengthen audit committees.