If you want your Audit Committee to be efficient, here are some key elements:
- Its objective is to review and report; in some cases also recommend or approve. Members should use risk management and focus on those risks related to financial statements, frauds, regulatory compliance, privacy and technology of information.
- There should be a description of the member’s role that includes: profile of recruitment, evaluations and remuneration. Members should comply with it and be evaluated according to it, at least once a year.
- Members must be totally independent: this includes independence of thought and judgement. Also have business and leadership expertise.
- Members must know the company in detail; getting to know the critical processes (includes site visits), the industry, key regulation and the shareholders objectives. They should also be trained in a recurrent way.
- Audit Committee should include at least 3 members and up to 6. However it’s advisable that the number of members is an odd number to minimize voting tie. At least one member should be a financial-accounting expert and all of them able to understand the financial statements.
- Members must be rotated at least every 5 years in order to maintain independence.
- Members should gather together at least 4 times per year and as much as needed to discuss or analyze any critical matter for the company. They should be present; not sending people on their behalf.
- Members must act ethically and integrally, setting an example to others.
- For every session an agenda and its support materials sent in advanced is suggested. It’s better than in the session the important facts are mention and start the analysis right away rather than read all the reports, minutes, etc.
Remember that beyond being a group of people, the Audit Committee ensures that financial information is accurate and reliable; therefore minimizes any reputational risk for the company.
By Mónica Ramírez Chimal, Partner of Asserto RSC, Mexico City
Learn more at AuditMasters 5.0 – The 5th Annual Internal Audit Forum.