An audit committee is a subgroup of a company’s board of directors, made up of independent, non-executive directors. Its primary responsibility is to oversee the organisation’s financial reporting, audit processes and internal controls. By providing impartial oversight, the audit committee helps ensure that financial statements are accurate, transparent and prepared in accordance with legal and regulatory requirements.
Role of the Audit Committee
The audit committee acts on behalf of shareholders to safeguard the integrity of a company’s financial reporting. Its key responsibilities include:
-
Overseeing the external audit
Selecting, appointing and reviewing the performance and independence of the external auditors. -
Reviewing financial statements
Examining draft financial statements and related disclosures before publication to ensure accuracy and completeness. -
Monitoring internal controls
Assessing whether the company has robust systems in place to prevent fraud, detect errors and ensure compliance. -
Risk management oversight
Reviewing the company’s risk management framework, including how financial, operational and compliance risks are identified and managed. -
Ensuring ethical and transparent reporting
Overseeing whistleblowing policies and ensuring management addresses any concerns raised about financial practices.
Audit Committees in the UK
In the UK, the existence of an audit committee is a legal requirement for listed companies, whose shares trade on regulated markets. For private companies, the appointment of an audit committee is not mandatory, but it is considered best practice, particularly for larger or more complex organisations.
Composition and Independence
To be effective, an audit committee must be made up of independent non-executive directors — individuals who do not participate in the day-to-day management of the business.
Key requirements include:
- Independence from management, ensuring objective judgement
- Relevant skills and experience, such as financial literacy or governance expertise
- At least one member with accounting or auditing expertise, as recommended by corporate governance codes
This independence enables the committee to challenge management, question assumptions and ensure high-quality reporting.
Why Audit Committees Matter
Audit committees play a vital role in:
- Protecting shareholders’ interests
- Ensuring the credibility of published financial information
- Supporting good governance and ethical behaviour
- Enhancing investor confidence
- Strengthening the reliability of financial markets
By offering independent oversight, audit committees help prevent financial misstatements, reduce the risk of fraud and promote a culture of accountability within the organisation.
