Mark Audit Committee Charter Made Easy

Esign audit committee charter

in this video we're going to discuss the composition and the role of the Audit Committee at a corporation so the Audit Committee is a subset of the Board of Directors here's what I mean by that so the company we know that the shareholders are gonna elect a board of directors to oversee the company's operations right in particular they're gonna oversee the company's executives for example they're gonna hire and fire the CEO and so forth right so we've got the role of the Board of Directors and then the Board of Directors is gonna form different committees there's gonna be a compensation committee a governance committee and one of those committees is gonna be called the audit committee so when I say that this audit committee is a subset of the board of directors what I mean is let's just say for example there are seven people on the board of directors then the audit committee will be drawn from those seven people so you might have three of the people out of those seven who serve on the audit committee okay so it's it's people who are directors but it's not the entire board of directors okay so it's a it's a subset of the board of directors now it can't just be any of those seven or ten or however many directors there are okay can't just be any of them they have to be independent directors remember independent directors or people who do not have a material interest in the company so for example the CEO is an inside director so the CEO cannot be a member of the Audit Committee the CEO is not independent okay so we need independent directors they can't be a large shareholder or a company officer or so forth and then also according to sarbanes-oxley at least one of the people on the Audit Committee has to be considered a financial expert I'm not gonna go into all the details of what constitutes a financial expert but just give you an example let's say somebody was a CPA there were a license a certified public accountant then they would be considered a financial expert so you need at least one financial expert and everybody on the Audit Committee needs to be independent directors okay now so that's the composition in the audit committee what they're gonna do is they're gonna hire there it's actually their most important roles they're gonna go on hire the company's external auditor let me say external auditor remember there's internal auditors at the company but then there's an external auditor this is this is some organization that's not part of the company that's being audited okay so some other company that's being brought in to to look at the financial statements of the company right so you're gonna look at their financial statements and then they're gonna issue an audit opinion saying whether those financial statements follow GAAP okay so the audit committee its third job to hire the external auditor and if there are any problems between the external auditor and the company's executives then the audit committee would get involved also if during the course of an audit the external auditor were to discover fraud they're supposed to bring that to the Audit Committee and also the audit committee is supposed to set up general things for all of its employees leaving aside the issue of the external auditor who does not work for the Audit Committee but for the for the company but the company's own employees they have to set up things for somebody like a whistleblower within the company so let's say there's some employee at the company okay there's some employee now again I'm not talking about the external auditor the external auditors not part of the company work for the company they're hired by the company audit committee to do an audit right of the company's financial statements but let's say there's an employee of the company the employee there should be some process in place where the employee if they were they discovered some kind of problem that they could go and report that to the audit committee and not be published right they are punished cause if you think about let's say the employee for example found out that the CEO was doing fraudulent there's something fraudulent the employee can't go and report that to the CEO and say hey CEO you know what I found out you're doing something wrong what do you think we should do about that right the employee is gonna go to the audit committee so the audit committee serves a very valuable role and basically overseeing the financial reporting process and then hiring and paying and and you know you know mediating any disputes with the company's external auditor