Establishing an Audit Committee

Sec 42 of Companies (Auditing & Accounting) Act 2003 & Article 41 of 8th EU Directive sets out the requirements for specific company types to build an audit committee. These provisions have not really been signed into law, even so the Department of Enterprise Trade & Employment have indicated that draft regulations adopting the provisions of the 2003 Act and 8th Directive, with a bit of amendments, will likely be published by the end of July 2009 and signed into law before the end of 2009.

What companies have to establish an Audit Committee?

The requirement to ascertain an audit committee is applicable to all public limited companies, qualifying large private companies, relevant undertakings and public interest entities.

Section 42 requires that all public limited companies whether listed or not, establish and adequately resource an Audit Committee with certain responsibilities as defined from the Act unless it is actually a wholly owned subsidiary undertaking of another public limited company.

Furthermore, qualifying large private limited companies and relevant undertakings must either establish an Audit Committee with all or some of the defined responsibilities, or decide to refrain from doing so.

A "qualifying large private company" is described as either:

A private company limited by shares whose balance sheet total exceeds ?25 million and whose amount of turnover exceeds ?50 million in the most up-to-date financial year as well as the immediately preceding financial year,
or
A personal company limited by shares if the company and each of its subsidiary undertakings together fulfill the above balance sheet and turnover criteria.
A "qualifying relevant undertaking" is described as either:
An unlimited company or partnership whose balance sheet total exceeds ?25 million and whose amount of turnover exceeds ?50 million in both the newest financial year and also the immediately preceding financial year, where all of the members who do not possess a limit on their liability are:
Companies limited by shares or by guarantee, or equivalent bodies not governed by Irish Law or a mixture of both there categories of body or
Bodies of any type referenced in subparagraph (i) which can be governed from the laws of any EU Member State or are equivalent bodies having a comparable legal form which are governed from the laws of the Member State or
A mixture of the categories of body mentioned in the preceding subparagraphs (i) and (ii)
Or
an infinite company or partnership of your type described in paragraph (c ) in case the company or partnership as well as its subsidiary undertakings together match the above balance sheet and turnover criteria.
Article 2.13 in the Directive defines 'public interest entities' as including:
Entities which have issued transferable securities admitted to trading on a regulated market governed by a Member State (4),
Credit institutions (5) (i.e. banks and building societies) and
Insurance undertakings (6).
What companies are certainly not required to get an Audit Committee?
Every private company limited by shares whose balance sheet and turnover totals are underneath the aforementioned limits

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Every unlimited company or partnership of the type described above whose balance sheet and turnover totals are less than the previously mentioned limits.

Other forms of corporate body not included i.e. companies limited by guarantee and non-EU Member State and branches.

Audit Committee Requirements

The Audit Committee must comprise of at least 2 members.

The 8th Directive mandates that one or more part of the Audit Committee must be independent and should be qualified in accounting or auditing.

A Director qualifies for appointment towards the committee if the individual:
Is or is not a staff member from the company or subsidiary during the last 3 years
Is just not the chairperson from the Board of Directors.
The Audit Committee requires appropriate term of reference that
Are already prepared and licensed by the Board of Directors
Are submitted to the shareholders at the AGM
Are reviewed annually through the board
Specify exactly how the committee will discharge its duties & responsibilities
Offer the a programme of meetings together with the management, auditor and internal auditor
Functions & Responsibilities of your Audit Committee
The primary functions of any Audit Committee include:

Overseeing financial reporting
Overseeing the process related to the company's financial risks and internal control & audit
Overseeing the internal and external audit processes.
Review and monitor the independence of the auditor & audit firm
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