Creating an Audit Committee Charter

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Creating an effective audit committee charter is a critical part of corporate governance and financial oversight. It provides a framework that guides the activities and responsibilities of the audit committee and ensures they are fair, accurate, reliable, and comply with applicable laws and regulations. It also helps to promote transparency within the company by providing assurance to investors and other stakeholders that financial statements are reliable. Moreover, it encourages accountability within the company by setting out principles that support good financial reporting.

The Genie AI team understands the importance of having an effective audit committee charter in place for any corporation. That’s why we provide free audit committee charter templates alongside step-by-step guidance on how to create one. With our comprehensive dataset of millions of data points built into our community template library, users can customize high-quality legal documents without needing a qualified lawyer or expert knowledge on the topic - so anyone can do it! We just want to help you make sure your company’s financial reporting obligations are met accurately and promptly; protecting both shareholders’ interests as well as promoting a culture of responsibility along the way. Read on below for more information on how you can access our template library today!

Definitions (feel free to skip)

Oversight: Supervision and monitoring of a process or activity.
Compliance: Meeting the requirements and standards of a particular law or rule.
Material Misstatement: An incorrect or false statement that affects the accuracy of a financial report.
Risk Management Framework: A set of structures, processes, and practices used to identify, manage, and monitor potential risks.
Internal Control Reports: Reports that assess the effectiveness of an organization’s internal controls.
Conflicts of Interest: A situation in which a person has a private or personal interest that interferes with the impartiality of their professional responsibilities.

Contents

• Define the Role of the Audit Committee
• Identify the purpose of the committee
• Define the scope of its responsibilities
• Establish the Membership of the Audit Committee
• Determine the size of the committee
• Select committee members
• Describe the Responsibilities of the Audit Committee
• Identify the primary responsibilities of the committee
• Define any additional responsibilities
• Outline the Committee’s Authority
• Clarify the committee’s authority
• Establish any limitations on the authority
• Define the Committee’s Reporting Requirements
• Determine the frequency and format of reports
• Specify the individuals or organizations who will receive the reports
• Establish a Meeting Schedule for the Committee
• Set the frequency and duration of meetings
• Specify the location of meetings
• Outline the Committee’s Access to Resources
• Determine the resources needed to carry out the committee’s responsibilities
• Describe how the resources will be acquired
• Describe the Committee’s Relationship with Internal and External Auditors
• Identify the relationship between the committee and internal and external auditors
• Define the responsibilities of each party
• Outline the Committee’s Obligations for Financial Reporting
• Describe the committee’s role in the financial reporting process
• Establish any additional obligations related to financial reporting
• Define the Committee’s Risk Management Framework
• Identify the risks that the committee is responsible for managing
• Describe the committee’s risk management strategies
• Establish a Policy for Conflicts of Interest
• Define what constitutes a conflict of interest
• Outline the process for disclosing and managing conflicts of interest
• Describe the Process for Evaluating the Committee’s Performance
• Determine the metrics to be used for evaluating the performance
• Set the timeline for evaluating the performance of the committee

Get started

#ERROR!

FAQ:

Q: What are the differences between the UK, US and EU laws when it comes to forming an Audit Committee Charter?

Asked by Steve on 5th April 2022.
A: The UK, US and EU all have different laws when it comes to forming an Audit Committee Charter. In the UK, companies must comply with the Companies Act 2006 and the Corporate Governance Code. These rules set out what is required of an Audit Committee Charter and how it should be managed. In the US, Sarbanes-Oxley governs the formation of an Audit Committee Charter, setting out requirements for its structure, purpose and reporting. In the EU, Accounting Directive 2013/34/EU is in force, which sets out rules for financial reporting and corporate governance.

Q: What are the benefits of forming an Audit Committee Charter?

Asked by Zoe on 13th March 2022.
A: An Audit Committee Charter can be beneficial to a company in several ways. It can improve corporate governance by providing transparency and accountability within a company’s financial matters. An Audit Committee Charter can also help ensure that financial statements are accurate and reliable and that any potential risks or irregularities are identified and addressed promptly. Additionally, having an Audit Committee Charter in place can help protect against potential legal liability or penalties if mistakes or mismanagement occur.

Q: What is the role of an audit committee in relation to an Audit Committee Charter?

Asked by Charles on 8th August 2022.
A: An audit committee’s primary role in relation to an Audit Committee Charter is to oversee the implementation and review of the charter. This includes reviewing any proposed changes or amendments to the charter and ensuring that all stakeholders within the company are aware of their responsibilities under it. The audit committee is also responsible for evaluating internal controls, financial reporting processes and risk management procedures to ensure compliance with applicable laws, regulations and industry standards.

Q: What information should be included in an Audit Committee Charter?

Asked by Rebecca on 22nd July 2022.
A: An Audit Committee Charter should include a clear statement of purpose outlining its objectives and roles within a company’s financial operations. It should also set out specific responsibilities for members of the committee, including how they will evaluate internal controls, financial reporting processes, risk management procedures and other relevant matters. The charter should also include information on how often meetings will be held and how decisions will be made. Finally, it should contain provisions for disclosing conflicts of interest, as well as procedures for addressing any conflicts that may arise during audits or other activities overseen by the audit committee.

Q: How often should an audit committee review the Audit Committee Charter?

Asked by William on 1st May 2022.
A: It is recommended that an audit committee reviews its Audit Committee Charter at least once a year to ensure that it remains up-to-date with any changes in laws or regulations that may affect its operations or performance. Additionally, it is important that any changes made to the charter are communicated clearly to all stakeholders involved in order to ensure everyone understands their responsibilities under it. Regular review of the charter also helps ensure that risks are identified and addressed promptly, as well as helping maintain overall corporate governance standards within a company.

Example dispute

Lawsuit Referencing Audit Committee Charter:

• A plaintiff may raise a lawsuit referencing an audit committee charter if they believe their rights have been violated by a company’s audit committee.
• The charter outlines the responsibilities and duties of the audit committee and provides legal recourse if those obligations are not met.
• The plaintiff must prove that the audit committee failed to fulfill its duties and violated their rights as outlined in the charter.
• If the plaintiff is successful, they may be awarded damages or other forms of compensation, depending on the specific circumstances of the case.
• The plaintiff may also be able to reach a settlement with the company, in which case the settlement amount will be determined by the court or agreed to by both parties.

Templates available (free to use)

Audit Committee Charter

‍