The role of the audit committee in corporate governance is quite tantamount when it comes to establishing a concrete scheme of affairs to oversee the effective conducting of the audit process.

The audit committee tends to ensure that companies are able to execute the financial reporting process in an effective manner, in addition to the audit process within the organization.

In this regard, it is also important to consider the fact audit committee is supposed to have an oversight of Internal Audit, as well as External Audit functions of the company.

Effective steering of the audit committee is extremely crucial because of the reason that it is considered as a vital process that helps to protect investors, and keeps the trust between companies and investors intact.

Role of Importance of Audit Committee in Corporate Governance

The manner in which audit committees are structured are representative of the need of having proper credible people on board who can actually make a positive contribution towards functioning of the company.

In this aspect, they are supposed to have at least one an individual as a financial expert. This is to ensure that the audit committee is not totally devoid of any technical financial knowledge that can impair their judgement and decision making when it comes to important decisions.

Regardless of the fact that it might not be necessary for all members to have proper corporate governance, yet it is fundamental to have people on board who have a previous record of managing accounting and finance related decisions at a higher level.

Related article  Professional Skepticism in Auditing - Why Is It Necessary?

This ensures that the board is well aware of accounting and finance standards that are integral to take effective decisions.

Preparation of financial statements tends to be a very important event over the course of the financial year of the company. It is a reflection of how the company has performed over the past year. It is representative of the profitability of the company, and the existing financial position.

Hence, it is understandably sought after by numerous stakeholders. In this aspect, it gets highly important on part of the company to ensure that financial statements have been prepared in a proper manner.

This tantamount responsibility cannot be extended to just managers, and needs to be attended to in a serious manner.

This tends to be a very crucial element of the Corporate Governance, and hence, the board is responsible to ensure that financial statements are prepared in a correct manner, in due time, without any misstatements. Hence, it is something that should be covered by the Audit Committee.

In the same manner, under Corporate Governance, audit committees are also likely to take charge of internal control within the company. Internal Audit is an extremely important process because of the reason that it helps companies to ensure that the current system is free from any leakages that increase the overall risk exposure of the company.

In this aspect, it is also highly important to consider the fact that Audit Committee helps to establish certain ground rules that ensure that Internal Audit is functioning in a proper manner, so that desired results can be achieved over the course of time.

Related article  [Updated 2017] ISA 210 Summary: Agreeing the Terms of Audit Engagements

In the same manner, the audit committee also helps in shaping, and positively contributing to Corporate Governance by pointing out reasons and rationale by overseeing the external audit that takes place.

They are responsible to oversee that auditor has been appointed, and the audit process is conducted in a proper manner, so that there are no issues pertaining to material misstatement in the preparation of financial statements, and that they have been investigated and audited in a proper manner.


Corporate Governance can be defined as an extremely integral part that can help companies to ensure that the company functions under the stipulated law and legislation.

It is also to protect the stakeholder (mainly shareholder) interests at large, so that the element of trust between the company and investors does not diminish over the course of time. Audit Committee helps to aid effective Corporate Governance by overseeing and subsequently improving financial practices and reporting.

In this regard, it is highly important to consider the fact that the audit committee is formed as a sub-wing of Corporate Governance, in order to specifically oversee the three most important elements when it comes to financial statements.

Hence, the role of the audit committee in corporate governance is quite important, because it defines how the company deals with important matters concerning their financial interests.