What are the primary responsibilities of an audit committee and how should it maintain independence?

• A. Oversee financial reporting, internal controls, external auditors, and risk; maintain independence through fully independent members, chair oversight, an audit independence policy, and regular meeting routines.
• B. Manage day-to-day accounting and prepare financial statements.
• C. Hire all staff for the finance function without oversight.
• D. Only ensure legal compliance.

Answer: (A)

The essential idea is that an audit committee exists to provide independent, objective oversight of the financial reporting process and related areas. Its primary duties include overseeing financial reporting, internal controls, the external audit, and risk management. Independence is maintained by ensuring the committee is made up of independent directors, with a chair who leads oversight and ensures accountability. An audit independence policy helps manage the relationship with the external auditor and governs any non-audit services, safeguarding objectivity. Regular meeting routines ensure timely review of financial results, control effectiveness, audit findings, and risk issues, so concerns are addressed promptly and governance remains strong.

Operational tasks like day-to-day accounting and financial statement preparation are management responsibilities, not the audit committee’s. Hiring finance staff is an HR function, not governance oversight. Focusing only on legal compliance misses the broader scope of governance, risk, controls, and independent oversight that the audit committee is meant to provide.