Seeking clarity, using a committee charter
This case shows the importance of audit committees being clear about their purpose.
One experienced committee member described setting up a formal audit committee charter.
First, be clear about the aim of the charter. In this case, it was needed to:
- set out deadlines for milestone reporting;
- elaborate on the assumptions underlying all audit committee judgements; and
- monitor follow-up actions, including reporting of remedial actions.
The reported effect of this change was improved coverage of issues, giving structure to the committee's reporting and improving accountability. Also, a formal follow-up procedure helped the board to make sure that problems were diagnosed and addressed.