How an Audit Committee Can Help Your Organization Perform at Its Peak
One of the keys to effective corporate governance is having the support of an audit committee to oversee an organization’s accounting, financial reporting processes and annual audit. An important function of an audit committee is to identify opportunities to improve an organization’s internal controls, which are the procedures, policies and processes a company employs to help minimize risk and safeguard the organization’s assets. Audit committees are required for public companies and encouraged for privately held organizations.
An audit committee can enhance an organization’s effectiveness in three key ways.
#1 – Ensuring the control environment is in place and functioning as intended
The “control environment” refers to the foundation of an organization’s financial reporting functions, and setting a strong tone at the top (i.e., in the C-suite) serves as the foundation for all other aspects of internal controls. The control environment provides discipline and structure in guiding an organization’s:
- Ethical values and integrity
- Leadership philosophy and operating style
- Commitment to competence
- Approach to assigning responsibility and authority
To help organizations maintain a well-functioning control environment, Creative Planning Business Services has developed PlainSight, an easily accessible and completely anonymous fraud hotline. With PlainSight, you can help protect your organization by empowering your employees to speak up when they witness suspicious or potentially fraudulent activity. These anonymous tips can then be directed to your audit committee for evaluation.
#2 – Overseeing the work of the financial statement auditor and internal auditors, as applicable
In completing a financial statement audit, the auditor is required to evaluate financial statement balances, accounting policies and the design of internal controls. This evaluation is focused on key financial reporting areas. When auditors conclude an audit, they’re required to communicate areas where the control environment could be improved upon to those charged with the governance of the organization (frequently the audit committee). It’s important for the audit committee to emphasize the importance of taking action to remediate the areas of improvement identified in the audit. Audit committees generally review and approve financial statements prior to the auditor finalizing their report, assuring adherence to accounting standards and integrity in financial reporting. Additionally, if an organization has internal auditors, they’ll likely report directly to the audit committee of the organization.
#3 – Anticipating — and taking steps to mitigate — organizational risks
Although management is responsible for managing the day-to-day legal, regulatory and compliance risks of an organization, the audit committee is responsible for overseeing the risk assessment process and inquiring as to how organizational risks are being managed. A critical responsibility of an audit committee is to identify, analyze and take steps to mitigate the specific risks an organization faces, as unexpected risks have the potential to cause irreparable harm to the organization’s reputation and/or operations. Having an audit committee in place helps ensure a business maintains a constant focus on assessing risks and determining their potential impact on internal controls.
Could you use help improving your organization’s oversight? Creative Planning Business Services is here for you. Our experienced professionals partner with clients to help them optimize all aspects of their organizations and drive success for their businesses. To learn more, schedule a call with a member of our team.
