Acca aaa s21 Notes

4. The role of the audit committee
The audit committee is a very important part of corporate governance. 
Liaison with 
external auditors:
• Scope of external audit
• Forum to link directors/auditors
• Deal with auditors’ reservations
• Obtain information for auditors
• Review independence and objectivity 
• Approve non-audit services
Review o
f 
internal audit
Monitor integrity of 
financial statements
Review of internal control
Financial Statements 
September 2021 to June 2022 exams
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The main roles and responsibilities of the audit committee include the following:
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Monitoring and reviewing the effectiveness of internal audit. Companies don’t have to have an 
internal audit department, but the need for one must be reviewed annually.
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Monitoring the integrity of the financial statements and reviewing significant financial reporting 
judgements.
๏
Review the internal financial controls and risk management systems (unless there is a separate 
risk committee or the board does this).
๏
Making recommendations to the board about the appointment, reappointment and removal of 
the external auditors and agreeing the terms of engagement. (Note that the external auditors 
are appointed by members in general meeting, but the board puts forward the nomination.)
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Annually assessing the independence, objectivity and effectiveness the external auditors 
including confirming that there are no self-interest or familiarity issues and that partners and 
staff are rotated properly.
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Acting as a forum to link directors and auditors. Auditors will typically write to the audit 
committee about any problems they may be having on the audit or obtaining all the 
information they require. If the auditors are worried in some way about the financial statements 
they will raise those concerns with the audit committee.
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Developing and implementing policy on the engagement of the external auditor to supply non-
audit services: skills, approval and non-approval for certain services, ensuring any threats to 
independence and objectivity are reduced to acceptable levels and monitoring the fees for 
those services and the total fee for all services provided by the external auditor.