What an audit committee actually reviews
Launch library · evergreen read
An audit committee is a subset of the board given specific responsibility for financial reporting, internal controls and the relationship with external auditors. Its members are usually drawn from the independent directors, precisely because reviewing management's own numbers requires a degree of distance that an executive director rarely has.
Typical work includes reviewing draft financial statements before they are released, questioning significant accounting judgements, assessing whether internal controls are working as designed, and meeting privately with the external auditor without management present. That private session matters, since it gives an auditor room to raise a concern they might otherwise soften in front of the people whose work is being reviewed.
The committee also plays a quiet role in fraud prevention, since its questions about unusual transactions or weak controls often surface issues long before they become large enough to attract wider attention. A disengaged audit committee is one of the more reliable warning signs that a company's governance is weaker than its public statements suggest.