Legal Position of an Audit Committee in Corporate Governance

Abstract

Corporate governance is nothing but a tool which directs or controls organization or its conduct. It covers the company's stakeholders' accountability as well as the laws, rules, processes, standards, and regulations that are likely to have an impact on the direction and control of the corporation. The audit committee functions as the board's representative, from them it gets the authority to carry out corporate governance obligations. These duties include supervising and evaluating the entity's financial statements, transparency, internal and external audit, system of control, compliance with regulations, and risk management actions. This is applicable to entities in the non-profit and a few non-governmental entities, including all the public, private, and hybrid sectors. Audit committee are basically, a committee which consists of directors from the board who are liable for monitoring and supervising the financial statements and records also includes appointment, compensation, and supervision on independent auditor. The audit committee also provides liaison between company management and independent Auditor. An independent auditor is a professional who performs an independent examination of company’s financial statement and gives an unbiased opinion to verify whether the given financial records are accurately presented, according to “generally accepted accounting principles (GAAP)”. An independent auditor is appointed by audit committee and he reports to it. The role of an independent auditor is to give assurance that the financial statements of a company is accurate and reliable1 . Audit committee also has duty to ensure whether the independent auditor has all the necessary resources to conduct thorough examination of the financial statements of a company and that the auditor has fulfilled to all of their responsibilities. The committee also ensures that the auditor is independent and has not taken part in any activities that would compromise their objectivity. It’s necessary for the independence of an audit committee, to be made up of independent directors who does not take part actively in company’s day to day functions, in order to make sure that their decision making is unbiased and is in best interest of the shareholders.