Audit committee responsibilities

The rise of the audit committee in scope and responsibility began occurring immediately after the passage of Sarbanes-Oxley in 2002, when all eyes were focused on the ways in which boards provide checks and balances on financial reporting and risk oversight. Today, audit committees play a vital role in the capital markets’ investor protection framework through their oversight of the internal audit function, external audit engagement and the company’s financial reporting process, as well as increasingly being tasked with enterprise-wide risk management.

SEC requirements for the audit committee
Audit committee financial expert definition

Be directly responsible for the appointment, compensation, retention and oversight of the independent audit firm, including resolution of disagreements between management and the auditor regarding financial reporting.
Independent auditors report directly to the audit committee.
Establish procedures for: (i) the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by company employees of concerns regarding questionable accounting or auditing matters.

The SEC defines an “audit committee financial expert” as a person who has the following attributes:

An understanding of generally accepted accounting principles (GAAP) and financial statements.
The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves.
Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the company’s financial statements, or experience actively supervising one or more persons engaged in such activities.
An understanding of internal controls and procedures for financial reporting.
An understanding of audit committee functions.

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Ray Garcia

Leader, Governance Insights Center, Houston, PwC US

Stephen G. Parker

Partner, Governance Insights Center, PwC US

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