Conducting audit procedures is a very important task that ensures that the overall operations and management within the company are well under check, and the company is able to operate as per the standard rules and regulations.
In this regard, it is quite rudimentary to ensure that the Audit Committee is able to address the relevant issues and oversee the overall process to justify their standing within the company.
The Audit Committee of the Board of Directors is established with the aim and objective to assist the Board to oversee and objectively assess the financial performance of the organization, its financial statements, internal controls, financial reporting, accounting standards, legal and regulatory compliance, and the independence of its External Auditors and other higher-level management.
The Audit Committee, therefore, is created to ensure that they are able to supervise the process and be accountable and responsible for the relevant actions that are taken in this regard.
For this purpose, the Company Act has been drafted to ensure that all these relevant issues are taken into account, with a clear sense of direction regarding the overall expectations from auditors regarding the process, including that of the Audit Committee, and all necessary inclusions in this regard.
The Terms of Reference are mandatory to be included in the Final Statements that are presented. These include a number of things, which include the following:
- Recommendation for appointment
- Remuneration and terms of appointment for the auditors
- Reviewing and monitoring the auditors’ independence
- Review of the overall effectiveness of the audit process
- A thorough examination of the financial statements and the audit report
- Related Party Transactions – Any approval or modification to be duly accounted for
- Scrutiny of any corporate loans, bonds or investments
- Valuation of Assets within the company
- Presence, and effectiveness of financial controls, and risk management systems
- Vigil Mechanism – the existing access to the audit committee chairperson
- Internal and external audit statutory documents and requirements
- Internal Control system
- Scope of overall audit – observations and review of the financial statements
- Observations made by the auditors about the review of the financial statements before submission to the board
- The auditors and the key management personnel – their presence is mandatory when the financial statements are being discussed.
- The auditors and the key management personnel to be present when the financial statements are considered by the Audit Committee – however, they do not have a right to vote.
Therefore, it can be seen that Terms of Reference is basically a document that is created to provide for numerous different questions that might arise regarding the audit process, and the audit committee itself.
Hence, the main criteria are to illustrate a roadmap, that all checkboxes have been taken care of, and there are no issues that still need to be resolved pertaining to the audit committee, or the assurance process.
The overall Terms of Reference provide an added layer of protection, to ensure that all the tasks and processes have been duly carried out.