Your organization’s Audit Committee Charter is a statement of authority and power of the Audit Committee of the Board. Your Board adopts the Charter at the first regular meeting of the Board following the Closing Date. The Board may amend the Charter.
The Audit Committee Charter describes the composition of the audit committee and its duties. The key elements to include in your Audit Committee Charter are the following details about the Committee:
Purpose
Membership
Authority and Responsibilities
Meetings
Reports
Evaluation
Power of the Committee
Purpose of the Committee
The Board of Directors establishes the Audit Committee. Its purpose of the Audit Committee is to support the Board and help it maintain its responsibilities for presiding over the following aspects of the organization:
Accounting
Auditing financial statements
Financial reporting
Internal control processes
Policies and procedures
Processes for identifying and managing risks
Committee Membership
The Audit Committee is make up of the Secretary/Treasurer of the Board and four additional members of the Board. All members of the Committee must be independent directors of the Board.
Chairman of the Board appoints the Committee members. The Board approves these appointments. A Board member appointed by the Chairman of the Board who is not the Secretary or Treasurer chairs the Committee. There shall be no overlapping membership between the Audit Committee and the Financial Committee.
The Board shall endeavor to seat a financial expert on the Committee. The Committee members serve one-year terms beginning January 1 and ending December 31 of the same year, or until the Chairman of the Board appoints a new Committee. The independence of the members is key. Any questioning of this independence shall be resolved by the Board for final resolution.
Committee Authority and Responsibilities
The Committee shall oversee the following duties:
Endorsement of Committee members, and retention and termination of the independent auditor to the Board. Committee shall nominate the organization’s independent auditor and monitor the auditor’s terms of engagement and the procedure for resolving any disagreements between the Board and the independent auditor regarding financial reporting, and any restrictions on the range of the auditor’s responsibilities or access to necessary information. The independent auditor reports to the Committee.
The Committee shall review the independent auditor’s compensation before any work begins. The Committee inspects the terms of the engagement, and the extent of the audit to be performed. The Committee explains to the auditor that the auditor is accountable to the Committee and the Board. If the auditor perceives any unusual or possibly damaging situations, the auditor shall immediately bring this situation to the notice of the Board.
The Committee shall consent to all audit and non-audit services provided by the independent auditor.
On a yearly basis, the Committee re-establishes the independent auditor’s relationships and professional services with the organization. The Committee can do this in writing or verbally. The Committee takes action to secure the auditor’s continuing independent affiliation.
In frequent communications, the Committee stays in touch with the independent auditor. The auditor informs the Committee of any ineffective internal controls and potential material risks the auditor noticed in the organization’s accounting and financial management procedures. Auditor may suggest ways to improve these situations.
Committee shall be the main conduit from the independent auditor, to the internal auditor, and the Board.
Committee assesses the policies and procedures for receiving, retaining, and treating complaints regarding accounting, internal controls, and audit processes. There shall be a procedure for maintaining anonymous confidence regarding staff and volunteers reporting unsavory activity related to financial internal controls, audit, and illegal activity. If needed, the Committee shall manage a special investigation.
The Committee reviews the organization’s external audit reports, internal audit reports, regulatory mandates, compliance with tax, and information return filings from federal, state, and local government entities. This review includes the independent auditor and the organization’s management team. The review discusses accounting principles and practices, and compliance with AICPA guidances.
Auditor and Committee discuss the adoption, implementation, and compliance of the organization’s Code of Ethics and Conflict of Interest Policies. Included in these discussions should be a Whistleblower Protection Policy.
The Chairman of the Audit Committee and Board Secretary/Treasurer shall review and approve each Audit Committee meeting.
The Audit Committee manages the organization’s policies and recommends new or updated policies.
On behalf of the Board of Directors, the Committee manages and oversees the organization’s risk management. Annually give a risk management report to the Board of directors.
Committee Meetings
The Committee meets annually and at any additional time as the Chairman or Board members deem necessary. The meetings may be by email, phone, or in person.
The Chairman and staff set the agendas prior to the meetings, and inform members of the details of the meeting -- location, date, time, etc.
When appropriate, the Committee shall meet with other committees to discuss items of like concern to both committees.
Committee Reports
Within three days following each meeting, the Committee shall present a written review of each meeting. Details in this report include a roster of those in attendance, copy of the agenda, review of Committee discussions, documentation of all recommendations and decisions.
The Committee will forward the written records to the members of the Committee before filing.
Committee Evaluation
The Committee shall prepare occasional performance reviews regarding the performance of the Committee and how it relates to the needs and execution of duties of the Committee.
Power of the Committee
The Committee has the power and control to carry-out any inspection in support of the goals of the Committee. The Committee has complete access to the independent auditor, volunteers, and staff of the organization.
The Committee has the influence to choose, retain, approve the fees, and terminate special independent legal guidance, accounting experts, and other advisors without Board approval.
When you have questions about your audit committee and its charter, contact TBFoster Accounting at trent@tbfosteraccounting.com to get your answers. We also invite you to keep in touch with our blog at www.tbfosteraccounting.com or join our nonprofit accounting group at https://www.facebook.com/groups/nonprofitspot/.
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