Audit Committee Members Qualifications

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For Nasdaq and New York Stock Exchange companies, the audit committee must contain a minimum of three directors, each of whom is “independent” and financially literate.

Independence

A director is considered “independent” if he or she has no relationship to the company that would interfere with the exercise of independent judgment in carrying out his or her responsibilities. The following directors are not deemed to be independent and therefore may not serve on the company’s audit committee:

Financial Literacy

In addition, each member of the audit committee must be able to read and understand fundamental financial statements, including the company’s balance sheet, income statement and statement of cash flows. At least one member of the audit committee must also have employment experience in finance or accounting, requisite professional certification in accounting or comparable experience or background with financial oversight responsibilities. These financial literacy requirements place the audit committee in a better position to supervise the company’s financial reporting processes.

Other Important Qualities

To be effective, audit committee members should also be:

Best Practices

The Board should evaluate the following additional considerations when determining how to increase audit committee member independence and financial literacy:

Further reading: Corporate Governance | Audit | Performance Improvement

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