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ACCA Applied Knowledge · Business and Technology · Governance in business organisations

Which of the following is the most appropriate responsibility of an audit committee in a listed company?

An audit committee reviews the integrity of the financial statements, the effectiveness of internal controls and risk systems, and the external auditor's independence and objectivity. Executive pay and board appointments are handled by other committees.

  1. ANegotiating the audit fee and instructing the finance director on which accounting policies to use
  2. BReviewing the integrity of financial statements and the effectiveness of internal controls and monitoring the external auditor's independenceCorrect
  3. CSetting the share option scheme for the executive directors
  4. DSelecting new board members and planning succession

Explanation

The audit committee, made up of independent non-executive directors, reviews financial reporting, internal control and risk systems, the internal audit function, and the external auditor's independence and objectivity. Executive pay belongs to the remuneration committee and board appointments to the nomination committee. Directing management on accounting policies is not its role.

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