Best Practices to Strengthen Your Audit Committee

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Audit committees play a critical role in ensuring financial integrity, strengthening governance and building stakeholder trust. Their purpose is not to manage but rather to oversee, bringing independence, skepticism and accountability to financial reporting and risk management. The committee’s core mission is to ensure the reliability of financial reporting, bolster internal controls and oversee audit quality.

Yet, in today’s rapidly changing regulatory and business environment, strong fundamentals aren’t enough. Audit committees must evolve, anticipating new risks and emerging challenges to remain effective stewards of transparency and trust.

Translating Oversight into Action

The following best practices outline key areas where audit committees can refine structure, improve processes and elevate overall governance performance.

Committee Composition and Independence

• At least one member should be a financial expert with knowledge of accounting principles and audit standards.
• There should be periodic self-assessments to evaluate whether the committee has the right mix of skills.
• Members must be independent: avoid recent management roles, strong business ties, close family relationships or other conflicts.

Governance and Structure

• Use a formal written charter to clarify responsibilities, authority and reporting lines and review it annually.
• Ensure authority to hire outside advisors, including legal counsel, forensic accountants or consultants, when complexity or risk demands it.
• Use self-assessments to identify gaps and improve.

Meetings and Communications

• Schedule periodic or quarterly committee meetings throughout the year with the auditor, timing them around audit cycles and significant risk events.
• Hold executive sessions with auditors, separate from management and encourage the auditor to share any concerns about management accounting. Topics discussed during executive session should include management’s tone at the top, judgmental accounting areas, internal control weaknesses and suspected fraud.
• Use an agenda that includes recurring items such as hotline or fraud complaints, regulatory updates, audit plans, cybersecurity updates, etc.
• Require timely and transparent communication from management, particularly if management is behind schedule or facing challenges.

Review and Align on Audit Scope

• Approve selection and scope of the external auditor.
• Coordinate to review audit. Request a detailed audit strategy and risk assessment presentation prior to commencement of audit fieldwork.
• Challenge the auditor on materiality thresholds, significant risk areas, internal control reliance and the use of specialists or data analytics.
• Ask for mid-audit progress briefings on preliminary findings.

Responsibilities and Oversight

In addition to the above, audit committees should be proactive in several areas, including:

• Internal controls: Monitor deficiencies and weaknesses; ensure management has adequate remediation plans.
• Fraud risk: Oversee whistleblower procedures, conduct fraud risk assessments and foster an ethical culture.
• Compliance: Review tax return and other regulatory filings and confirm that transactions are conducted at arm’s length.
• Complaints: Establish formal procedures for receiving and investigating concerns related to accounting or auditing matters.
• Engagement with management on emerging risks, such as AI, cyber threats, regulatory shifts.

Tone at the Top and Ethics

• Influence tone at the top by supporting a written code of ethics for management and staff, encouraging whistleblowing and protecting employees who report issues and periodically assess organization culture through surveys and direct discussions with staff.
• Investigate allegations of fraud, conflicts of interest and related-party transactions.

Crisis and Continuity Planning

Coordinate with management to evaluate business continuity, disaster recovery and crisis-response planning.

Continuous Improvement

• Stay current on new accounting rules and regulatory changes.
• Review the committee’s performance annually, including feedback from auditors
• Conduct a post-audit debrief with both auditor and management to evaluate potential process improvements.

An engaged and informed audit committee is essential to effective governance. By adopting best practices, audit committees can serve as trusted guardians of integrity and transparency, while also remaining relevant and anchoring its work in transparency and accountability.

Contact Us

For more information about best practices for audit committees, please contact your PKF O’Connor Davies client service team or either of the following:

Jonathan Zuckerman, CPA
Partner
jzuckerman@pkfod.com | 646.699.2842

Ioanna Vavasis, CPA
Partner
ivavasis@pkfod.com | 646.699.2861