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.