To have a detailed understanding of audit committee terms of references, it is necessary to know what an audit committee is and what its responsibilities are.

An audit committee is the major operating committee of a public or listed company that oversees the financial reporting and the required disclosures. According to the rules of the USA and other many countries, it is required to maintain an independent audit committee.

These guidelines of having an audit committee require to include independent outside directors with at least one financial expert. The audit committee oversees the operations of executive directors and reports to shareholders of the company.

Terms of references for audit committee:

The terms of references to the audit committee document the detailed explanation of the audit committee and explain the specific roles and responsibilities of the committee.

These terms of references include guidance for the members of the audit committee about their roles and responsibilities, obligations, about their operations and their period of serving as a member of the committee.

The terms of references of the audit committee are structured to provide the following details to its members.

Roles and responsibilities of the committee:

These references guide the members of the audit committee of their activities and boundaries of work.

Some of the activities expected in many countries and which these references explain are to focus on the company’s reporting process, to provide a channel for the audit process, establishing a standard for the organization’s internal controls, and to comply with the laws and regulations of legislations.

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The terms of references of the audit committee’s primary focus are to appoint auditors, set their compensation and discuss the critical points with auditors.


Terms of references of the audit committee also provide a guideline on, what should be the minimum qualification criterion for its members.

Many legislations ask companies to hire at least three independent non-executive external directors. They also ask that at least one of the members of the audit committee must be a financial expert.

They sometimes require members to have a requirement of minimum academic qualification.  The audit committee is headed by the chairman of the audit committee who is required to be a non-executive director.

Quorums of meetings:

Some legislations set the minimum number of meetings in a financial year. The most used number of meetings set by legislations are to be not less than four during a year.

Some legislations also set the lowest number of non-executive members of the audit committee to be physically present in the meeting.

If the chairman is not present during a particular meeting, then members of the committee will select a member as chairman of the committee among them.

Some legislations also require the appointment of secretary for the audit committee who is the secretary of the company in most instances. Secretary of audit committee schedules the timings, place and duration and purpose of the meeting.

There are also other terms of references of the audit committees such as in some instances it requires the board meeting minutes to be kept at registered offices of the company and share these with members of the audit committee and other directors if needed.

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One purpose of the audit committee according to terms of reference is to look up the function of internal audit along with the internal audit department is required to directly report to the audit committee.