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Committee Role
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  • 1. Provided by: Evangelical Council for Financial Accountability 440 West Jubal Early Drive, Suite 130  Winchester, VA 22601 540-535-0103  800-323-9473  Fax: 540-535-0533 www.ECFA.org  Email: info@ECFA.org Audit Committee Charter ECFA’s Standard 2 states: The board or a committee consisting of a majority of independent members shall review the annual audit and maintain direct communications between the board and the independent certified public accountants. For ECFA members that utilize an audit committee, ECFA encourages the preparation of a formal written charter adopted by the full board and regularly reassessed. This charter should include the following:  The scope of the committee’s responsibilities and how to carry them out.  A statement that the external auditors are ultimately accountable to the board of directors and the audit committee, who have the authority and responsibility to evaluate and, where appropriate, replace the external auditors.  A statement that the audit committee is responsible for ensuring that the external auditors submit a formal written statement regarding relationships and services that may impair independence, and for the purpose of discussing any related, relevant matters with the auditors. In addition, the following areas should be considered for inclusion and tailored to suit the needs of each organization:  Require the committee to report to the board that to the best of its knowledge: • The independent auditor of the organization meets the standards of the accounting profession. • The organization’s financial reports fairly present its financial position and operating results. • Internal controls are reliable, and provide adequate safeguards of the organization’s assets and proper recording of its transactions.  Report to the board such matters as conflicts of interest, private inurement, and other insider transactions; the use of organization funds, unauthorized payments, or any other questionable practices that come to its attention.
  • 2. Audit Committee Charter Page 2 of 6  Authorize an investigation of alleged improprieties, including retention of outside counsel and other professional consultants, as needed, in the discharge of those duties.  Inform the board of significant developments and accounting principles affecting the organization, as well as relevant rulings by the IRS and other regulatory bodies. The primary purpose of the charter is to create a practical roadmap to help the audit committee achieve its goals. Such a charter is superior to a seemingly endless list of responsibilities that may actually be counterproductive. After the charter has been drafted and reviewed by counsel, the board should formally approve it. A sample audit committee charter is attached and is provided for illustrative purposes only. As such, it may be a helpful starting point for an organization to use in developing its own charter. _____________________________________________________________________________ This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.
  • 3. Audit Committee Charter Page 3 of 6 Audit Committee Charter – Sample Committee Role The committee’s role is to act on behalf of the governing board and oversee all material aspects of the organization’s financial reporting, control, and audit functions. The audit committee’s role includes a particular focus on the qualitative aspects of financial reporting, organization processes for the management of risk, and compliance with significant, applicable tax, legal, ethical, and regulatory requirements. The role also includes coordination with other board committees and maintenance of strong, positive working relationships with management, external and internal auditors, counsel, and other committee advisors. Committee Membership The committee should consist of at least three members. To ensure that the committee is independent, a majority of the committee members must be other than staff (including missionaries, volunteers, or other staff who have raised their own support). However, persons who volunteer a substantial number of work hours can meet the “non-employee/ staff” qualification, as long as their services are not in decision-making roles. The committee chair should not be an employee of the organization. The auditor should not serve as a member of the committee, but should only serve in an advisory capacity. Adequate financial expertise should be represented on the committee. Committee appointments shall be approved annually by the full board upon recommendation of the nominating committee. Committee Operating Principles The committee shall fulfill its responsibilities within the context of the following overriding principles:  Communications. The chair and others on the committee shall, to the extent appropriate, maintain an open avenue of contact throughout the year with senior management, other committee chairs, and other key committee advisors (external and internal auditors, etc.), as applicable, to strengthen the committee’s knowledge of relevant current and prospective organizational issues.  Meeting agenda. Committee meeting agendas shall be the responsibility of the committee chair, with input from committee members. The chair also is expected
  • 4. Audit Committee Charter Page 4 of 6 to ask management and key committee advisors, and perhaps others, to participate in this process.  Meeting attendees. The committee shall request members of management, counsel, internal and external auditors, as applicable, to participate in committee meetings, as necessary, to carry out the committee’s responsibilities. Periodically (at least annually), the committee shall meet in private session with only the committee members. It shall be understood that either internal or external auditors, or counsel, may at any time request a meeting with the audit committee or committee chair with or without management’s attendance. In any case, the committee shall meet at least annually in executive session separately with internal and external auditors.  Meeting frequency. The committee shall meet at least once a year. Additional meetings shall be scheduled as considered necessary by the board, the committee, or the chair.  Reporting to the board of directors. The committee, through the committee chair, shall report periodically to the full board (as deemed necessary, but at least once a year). In addition, summarized minutes from committee meetings shall be available to each board member prior to the meeting of the board of directors. Committee Responsibilities Financial Reporting  Review and assess the financial statements before they are released to the public or filed with funders or regulators.  Review and assess the key financial statement issues and risks, their impact or potential effect on reporting financial information, the processes used by management to address such matters, related auditors’ views, and the basis for audit conclusions.  Approve changes in important accounting principles and the application thereof in both interim and annual financial reports.  Advise financial management and the external auditors that they are expected to provide a timely analysis of significant current financial reporting issues and practices.  Review the management letter and review management’s response to the management letter.
  • 5. Audit Committee Charter Page 5 of 6 Risks and Controls  Review and assess the organization’s operating and financial risk management process, including the adequacy of the overall control environment and controls in selected areas representing significant risk.  Review and assess the organization’s system of internal controls for detecting accounting and financial reporting errors, fraud and defalcations, legal and tax code violations, and noncompliance with the organization’s code of conduct. In that regard, review the related findings and recommendations of the external and internal auditors, together with management’s responses.  Review the results of the annual audits of directors’ and officers’ expense accounts and management perquisites prepared by the external or internal auditors. External and Internal Auditors  Recommend the selection of the external auditors for approval by the board of directors.  Instruct the external auditors that they are responsible to the board of directors and the audit committee as representatives of the organization. In that regard, confirm that the external auditors will report all relevant issues to the committee in response to agreed-upon expectations.  Review the performance of the external and internal auditors.  Obtain a formal written statement from the external auditors as to their independence. Additionally, discuss with the auditors any relationships or non-audit services that may affect their objectivity or independence.  Consider, in consultation with the external and internal auditors, their audit scopes and plans to ensure completeness of coverage, reduction of redundant efforts, and the effective use of audit resource.  Review and approve requests for any consulting services to be performed by the external auditors, and be advised of any other study undertaken at the request of management that is beyond the scope of the audit engagement letter.  Review with management and the external auditors the results of the annual audits and related comments in consultation with other committees as deemed appropriate, including any difficulties or disputes with management, any significant
  • 6. Audit Committee Charter Page 6 of 6 changes in the audit plans, the rationale behind adoptions and changes in accounting principles, and accounting estimates requiring significant judgments.  Approve changes in the operating plans of the internal audit function.  Instruct the internal auditors that they are responsible to the board of directors through the committee. Other  Review and update the committee’s charter.  Oversee administration of the organization’s conflict of interest policy, including the review and approval of significant conflicts of interest and related party transactions. ____________________________________________________________________________ This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.