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Halvorsen Ltd is a listed company whose board has six members: a chair, the chief executive, the finance director and three non-executives. The audit committee comprises the finance director and two non-executives, one of whom is a former Halvorsen finance manager who left last year. A new investor argues the committee is not credible. Which change would MOST effectively address the weaknesses?

Replace the finance director and former employee with independent non-executives, including at least one with recent relevant financial experience. The committee must be independent of the management whose reporting it scrutinises, and more meetings or another executive would not fix that.

  1. ARemove the finance director and the former employee, and appoint independent non-executives, at least one with recent relevant financial experienceCorrect
  2. BKeep the membership but increase the number of meetings each year
  3. CReplace the finance director with the chief executive to give stronger leadership
  4. DDissolve the committee and let the full board review audit matters

Explanation

The committee has two problems: an executive who is responsible for the reporting it should scrutinise, and a non-executive whose recent employment impairs independence. The remedy is a committee of independent non-executives with relevant financial experience. More meetings do not cure independence, and a chief executive is also an executive.

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