The Role of the audit committee - Essay Example

The paper will discuss the roles, the responsibilities and the effectiveness of the audit committee in details. The independence of the audit committee and how its independence is ensured will be explored. The current issues that are being faced by the audit committee in the context of various accounting misrepresentations will also be analysed. Role of Audit Committee The Role of Audit Committee in the US and the UK and Oversight of Internal and External Auditors and Overseeing Financial Reporting The audit committee has the responsibility of judging the validity of financial statements.

The internal financial controls of the company and the company’s risk management system are reviewed by the audit committee (Financial Reporting Council, 2010). The audit committee is responsible for hiring the external auditors. They have the right to fire the external auditors if their performance is not satisfactory. . The audit committee has the authority to hire as well as terminate the independent auditors. They approve the fees of engaged auditors. They conduct discussion with the independent auditors regarding the approach that will be taken in conducting the audit.

They conduct a review of the audit that is done by the independent auditor to understand the areas of concern and make suggestions. They conduct an annual review of the audit report of the independent auditor. The audit committee reviews the company’s accounting controls internally along with the risk management policies of the company. They monitor the financial reporting and financial disclosures in the company. The financial statements that are audited are discussed with the management and the auditors.

The audit committee reports regularly to the board of directors regarding their inference from audit reports (Singh, 2005). The audit committee is responsible for ensuring independence of both internal and external auditors. The audit committee has a liaison with internal and external auditors. The external auditors underwrite the validity of accounting information. The audit committee has the responsibility of ensuring the independence of the internal auditors. They provide resources to the internal auditors to ensure quality of the information.

The internal auditors report to the audit committee. The compliance with standards and code of ethics of the internal auditors make things easier for the audit committee (The Institute of Internal Auditors, 2004). Importance and Effectiveness of Audit Committees The rising scandals and fraudulence activities in the corporate world have increased the