In line with businesses developing a ‘Statement of Purpose’ to demonstrate why they are in business, audit committees also should promote their purpose and communicate it to all stakeholders. An audit committee is tasked with many roles but fundamentally protects the interest of the public and the community at large, in the company.
Balancing their above purpose with their fiduciary duty as directors of the company will of course be challenging. Every audit committee member I meet, always raises an issue around where management responsibilities end and oversight responsibilities start. Oversight responsibility can be typically explained as “Noses in, fingers out.” “Noses in” implies that there is nothing off limit for you to ask all the clarifications needed. “Fingers out” is a reminder that your role isn’t an operational role in the day to day activities of the company, but one of oversight. This also does not mean that the members should keep their “mouth shut.” There should be a clear understanding of the lines of authority for audit committees and management regarding where management duties end and the audit committee begins. Ongoing communication is important to build a trusting relationship between the audit committee and management.
Trying to do a statement of purpose for an audit committee would be a long shot and challenging. It’s also open to dispute and criticism about over extending the expectations on why a good audit committee does what they do. Even then let me try to draft an Audit Committee’s purpose; “To have a process for oversight over the system by which companies are directed and controlled, in order to balance and protect the various stakeholder interests.”
This purpose can be fulfilled by the role of the Audit Committee summarized as;
Having oversight for the;
▶️ integrity of the company’s financial reporting process,
▶️ company’s compliance and risk management process,
▶️ independent auditor’s independence and quality of delivery, and
▶️ performance of the company’s internal audit function.
And why would the audit committees want to create such an expectation? May be you could take inspiration from what Dalai Lama said.
“Our prime purpose in this life is to help others. And if you can’t help them, at least don’t hurt them.”- Dalai Lama