Audit Committee Terms of References (Guidance)


Corporate governance rules require companies to adhere to the requirements of the audit committee. The Board of Directors is responsible for appointing an audit committee.

 The audit committee can comprise several members and must follow specific terms of reference.

 The terms of reference for an audit committee provide a guideline to the scope and responsibilities of the audit committee. The TORs also ensure the effectiveness and compliance of an Audit Committee.

 An audit committee can have as many meetings as required. the chair of the audit committee and the company secretary can decide on the frequency of meetings.

 The scope and responsibilities of an audit committee will also depend on the size, nature, and complexity of the business.

 Here is a guideline on the terms of reference for an audit committee citing the corporate governance rules and best practices in the industry.


 The first term of reference is to define the purpose of an audit committee.

 the purpose of an audit committee is:

1. Assist the board of directors (BOD) in financial reporting and helping the board in achieving its responsibilities regarding financial statements, financial reporting, and internal controls.

2. monitor the effectiveness of the internal and external auditors representing the BOD. 3. assessment of control framework of the company, including:

compliance, Operational Risk, Quality, financial crime prevention, conflicts, ethics, and independence.


 1. The audit committee will represent the BOD of the company. It derives the authority and reports to the Board.

 2. The committee is authorized to:

 1. Investigate any matter within its terms of reference and seek information from any employee, partner, or office of the company.

2. obtain independent legal, accounting, or other professional advice whenever required. 3. publish in the annual report of the company about unresolved issues with the board. the board can issue an explanation to address such unresolved issues such as recommendations for external auditors not approved.

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 The committee will consist of at least three members. These members should be non-executives of the company, at least one member should be a member of the risk committee as well.

 The board shall nominate all the members as recommended by the nomination committee.

 The board may remove members of the committee before their terms at any time.


The board shall appoint the committee chair but the chair should not be a member of the audit committee.

The Chair of the audit committee will be an elected or nominated member of the board.

In the absence of the chair, the audit committee will choose one of the members as the chair.

 Duration of membership

The membership duration or term for the members of the audit committee can be up to three years. The board can extend the term of the members for additional two years as well.


The board secretary or the one nominated by the board shall also work as the secretary of the committee.

The secretary will ensure to record the meeting minutes and circulate the information to the members of the board and relevant persons.


The TORs regarding meetings include the following sub-sections.

Notice of Meetings

The meeting shall be called by the secretary, chair, or any member of the audit committee.

The committee shall notify all members of the meeting date, agenda, and place.


Any two members of the committee can form the quorum.

In the absence of members, the committee can opt to elect other board members to complete the quorum.


 Members of the committee, elected or appointed board members, and independent non-executives can attend the meeting.

The following persons can attend the meetings:

CFO, General Counsel, Secretary, head of internal audit, chief risk officer, external audit representative.

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 Meeting minutes

The secretary shall record and present the meeting minutes to the chair of the board.

Approved meeting minutes shall be communicated to all board members.

 Communication with shareholders

 The chair of the audit committee shall attend the annual general meeting to answer any questions from the shareholders.

 Duties of Audit Committee

The TORs regarding the duties include the following sections.

 Financial Reporting

 The committee shall monitor the financial reporting of the company including financial statements, announcements, and other reports.

the committee shall review:

  • implementation of accounting policies
  • accounting methods for significant and unusual transactions.
  • assessment of the company’s accounting policies and adoption methods.

 Internal Controls and Risk Management

 The committee shall review:

  • The financial controls system, internal controls, and risk management systems.
  • Review and approve the annual report including internal controls, risk assessment, emerging risks, and viability statement.
  • The findings of special investigations and internal audit reports regarding fraud, misconduct, or weaknesses in the internal control system.
  • The management’s response to internal control reports.

 Compliance, Fraud, and Whistleblower Policies

The committee shall:

  • assess and review the systems in place for raising concerns about wrongdoings in the company.
  • review the company’s fraud detection system in place.
  • controls for bribery prevention system.
  • review on risk compliance system and effectiveness of compliance function.

Internal Audit

 The audit committee shall:

  • Appoint the head of the internal audit committee.
  • Approve the role and mandate of internal audit and review the internal audit charter annually.
  • Make sure that internal audit has unlimited resources to fulfill the scope and access to information.
  • Ensure that the internal audit has direct access to the chair of the BOD and the chair of the audit committee.
  • Assessment of internal audit plan
  • Evaluate the adequacy of internal audit’s expertise and experience is relevant to the company’s business.
  • Review the actions taken by the company management as recommended by the internal audit.
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 External Audit

the committee shall:

  • Consider the appointment and removal of the external auditors for the company.
  • Ensure that there is no relationship between external audit and company that could affect the objectivity of the external audit.
  • Assess and challenge the objectivity, performance, and independence of the audit annually.
  • Approve audit plan, scope, and nature of the external audit work.
  • Review the external audit’s findings and management’s action plan to implement the recommendations.

Company Insurance Arrangements

The committee shall:

  • Ensure that the company has adequate insurance arrangements for all insurable risks relating to the nature of the business.
  • Suggest any recommendations to the board for any changes to existing insurance arrangements.

 Reporting Responsibilities of the Audit Committee

The reporting TORs include:

  • The chair of the audit committee shall communicate the audit committee meeting minutes to the chair of the board of directors.
  • Reporting significant issues regarding financial statements
  • Report its assessment on the effectiveness of external audit
  • Recommendations on any matter within its scope to the BOD including the scope of external audit, length of tenure, financial reporting,
  • And compliance matters.
  • Compiling a report that includes the activities performed by the audit committee.

The report shall include:

  • Significant issues related to financial statements
  • Explanation of the audit committee’s assessment and review procedure of external audit’s objectivity and effectiveness.

 Governance and Resources

The audit committee shall:

  • Ensure the availability of adequate ongoing training for its existing or new members.
  • Report its activities under the tors and report its conclusions to the board.
  • Report whether or not it receives sufficient resources to carry out its activities in accordance with its tors.
  • Ensure that the committee has sufficient resources to consult independent professionals if required.

Review of TOR

 The committee shall regularly review the TORs and recommend any changes to the board.