The audit committee carries the most defined responsibilities of any board committee.
Composition. Independent members, with at least one financial expert disclosed, and all members financially literate.
External auditor. Direct responsibility for appointment, compensation, retention and oversight; pre-approval of all audit and permitted non-audit services; annual assessment of independence and quality; and private sessions without management.
Financial reporting. Review of the annual and interim statements, the critical accounting estimates, significant judgments, changes in accounting policy, and any disagreements between management and the auditor.
Internal control. Oversight of the assessment, of identified deficiencies and of remediation.
Internal audit. Where it exists, approval of the plan, the budget and the head of the function, with a direct reporting line.
Complaints. Procedures for the receipt, retention and treatment of complaints about accounting, internal controls and auditing, including confidential anonymous submission by employees. The committee owns this channel rather than management.
Investigations. Authority to engage independent counsel and advisers, with funding provided by the company.
Risk. Oversight of financial and, in many companies, broader risk, with a defined division from the full board.