Every organization should have an audit committee that deals with the affairs of the corporation. This committee is responsible for guaranteeing repeated success and a low number of defaults with the organization. People legible to become a member of this committee have to go through certain requirement checks because this job is extensively demanding and law-abiding.

Firstly, a director of the audit committee should be independent. This means that the person taking up this job should not have any sort of inclination towards the company that might hinder his sense of decision making. Therefore, directors who have had a prior relationship with the company like being an ex-employee or a rival company director seeking advantage of the situation are not declared as independent. Hence, they are ineligible to sit in the auditing board.

Being financially literate is another aspect of becoming an audit board member. As the committee will be continually dealing with financial statements and balance sheets, it is important for the director to have a sound knowledge of number crunching. Any mistake in reading these statements can lead to a wrong decision making process ultimately bringing damage to the organization. Each and every number should be examined carefully before reaching any conclusions at all.

Members of the auditing board should be devoted workers giving their time and patience to important decisions and checking done in the board room. They should have flexible personal routine schedules so that any upcoming personal event can be put off to another suitable date, giving more time for auditing.

This is why; recently the need for proper governance has increased. Along with that, the need for proper internal audit has also come about. This is primarily because the need to prevent risks (like bankruptcy and identity theft) has increased.

How Auditing Promotes Good Governance

The United Nations recently identified some best practices of good governance. These features focus on improving functioning and performance of the public sector. The four best practices include:

• Transparency: Information regarding investments and decisions taken must be available for stakeholders whenever they want information.
• Public accountability: Managers or CEO’s taking decisions must be accountable for their decisions. Therefore, decisions and changes made must be documented.
• Effectiveness or Efficiency: The output from employees must be optimal. This will prove that the company has good governance.
• Responsiveness: How soon the system responds to changes in policies is also proof of good governance.

This means that good governance provides unbiased assessment of the enterprise and its employees. Governance auditing is the cornerstone of good governance. It helps maintain integrity and accountability of the company. This preserves the confidence and interest of stakeholders in the company. Therefore, governance auditors play an important role in supporting governance responsibilities.

A complete insight into the best practices involved in the business process helps decision makers make the right choices. This is possible because internal audits present details on finances and performance. It also assists with investigation and advisory services in the organization. This helps improve output from employees.

Internal audit promotes organizational independence. The system enables the organization to take important decisions independently. Additionally, internal auditing helped with budget management for sufficient funding. Moreover, because internal audit facilitates best practices and improves governance, hiring competent staff becomes possible.

Conclusively, having a proper internal audit system has a positive impact on governance best practices.

Documentation for Best Practices

Documentation of information related to the loan is very crucial. Therefore, financial institutions and banks lending money must ensure compliance with the following administrative documentation:

• Business Loan Application: There must be proper documented application stating that the person in question applied for a specific loan.
• Personal Financial Statement: Before a loan can be given, lenders must be presented with a financial record. The record will be used for the best practice of evaluating risk associated with lending to the applicant. (The credit bureau issues at least one copy free for all lenders in the US.)
• Three Year Record on Personal Tax Returns: There must be proof of payment of taxes for at least three years.
• Three Year Record on Business Finances/Taxes: If the applicant for loan is a business organization, there must be proof of at least three years of business tax payments.
• Business Debt Schedule: There must be an updated record of the current business debt status.
• Environmental Assessment Form: Depending on the purpose of the loan, there may be need for an environmental assessment.
• Rental Property Feedback Form: If the property where the applicant is located is a rented building, the lender will need more details. The information needed will be asked in a questionnaire.
• Declination Letter: If the information needed for approval of the loan is unsatisfactory, then the lending organization will have to send a declination letter. Informing the applicant about the reason for declining the application is an important best practice.

In addition to these best practices, there may be need for additional information. This can include:

• Business Credit Card Application: This may not be applicable in some circumstances. The need varies according to the target audience.
• Questionnaire for Religious Organizations: If a religious organization is asking for the loan, this questionnaire will be needed to obtain specific details.

The information requested helps lenders to keep track of the creditor. They issue coding, booking and servicing for best practices. The NAICS code and the Financial Statement Expiration date are recommended for in lending and loan administration.

Documentation must be organized and well maintained. Keeping separate filing systems for credits and collaterals documents is a recommended best practice. These ensure management of cases in the pipeline. Additionally, through documentation, lenders can anticipate loan problems and take necessary measures immediately.

Conclusively, best practices in lending and loan administration are very important. Lapses in documentation lead to great losses for lenders (banks and lending institutions).

More Involvement

Directors need to stay close to the business at all times to ensure best practices. They have to be more involved and get closer to the staff. This is why a lean, mean and auditing machine is important. This ensures that they can tailor internal audit protocols to ensure that the needs of clients are met. In the long term, the advantage of more involvement is that an excellent reputation can be built and maintained.

More Exposure

Internal audits are not offered in isolation of particular departments, levels or functions in an organization. The big picture here is that auditing across the whole organization makes directors deal with everyone in the organization. The best practice of using lean, mean and auditing machines is thought of as a means of motivating the staff, directors and auditors to work together.

Simplified Administration

Scheduling, budgeting and other administrative tasks which involve hectic best practices become simplified. Furthermore, lean, mean auditing machines minimize wastage of time and maximize efficiency. This is mostly attributed to the involvement of directors, auditors and other staff members.

The involvement of auditors in the planning process saves time, and impacts the attitude of the staff generally. It is a known fact that when auditors get involved, there is more productivity. At the same time, high quality standards are maintained.

Increased Coverage for Internal Audit

Most times, a single director cannot manage many operations at the same time. When two or three projects are running in parallel, maintaining proper documentation and paper work is difficult. Ensuring that there is enough clerical support is an important best practice. However, this is not always implemented, which leads to compliance issues.  Having a lean, mean, auditing machine makes thing easier for directors.

Hiring Best Practices

Directors generally need best practices in hiring personnel. They cannot take chances and make mistakes in choosing the new employees. The requirements for a proper auditing system, lead to increase in compliance with regulations, auditing and reporting as well. Therefore, training hired personnel is not affordable by directors.

Ability to Face Unique Challenges

Through lean, mean auditing machines, directors can gain independence and increase awareness of potential problems. This leads to better chances of ensuring best practices and compliance throughout the organization. It further contributes to mitigation of risks and increases the ability of directors to face unique challenges.

Conclusively, using a lean, mean and auditing machine is very important for best practices in auditing and management.

Audit committees play a pivotal role, and have become an essential component of modern corporate best practices.

As a result, it is critical that the duties of the audit committee be well defined and understood, and how well the audit committee is satisfying its responsibilities.

In its oversight capacity, the audit committee is neither intended nor equipped to guarantee with certainty to the full Board and shareholders the accuracy and quality of a company’s financial statements and accounting practices. Proper financial reporting, accounting, and audit functions are collaborative efforts conducted by full- time professionals dedicated to these purposes. The audit committee, as the first among equals, oversees the work of the other actors in the financial reporting process – management, including the internal auditor, and the outside auditors – to endorse the processes and safeguards employed by each. In particular, the audit committee should encourage best practices that promote accountability, ensuring that management properly develops and adheres to a sound system of internal control, that the internal auditor objectively assesses management’s accounting practices and internal controls, and that the outside auditors, through their own review, assess management and the internal auditor’s practices.

Nasdaq and NYSE listed companies are required to have a formal written charter for their audit committees. The audit committee must review and reassess the adequacy of the charter annually. The charter must at a minimum specify the following:

• the scope of the audit committee’s responsibilities and how it carries out those responsibilities, including structure, processes and membership requirements;
• the audit committee’s responsibility for ensuring its receipt from the independent auditors of a formal written statement delineating all relationships between the independent auditors and the company, consistent with Independence Standards Board, Standard No. 1;
• the audit committee’s responsibility for actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and for taking or recommending appropriate action to oversee the independence of the independent auditors;
• the independent auditors’ ultimate accountability to the Board of Directorsand the audit committee, and the ultimate authority and responsibility of the Board and audit committee to select, evaluate and, where appropriate, replace the independent auditors.

Audit Committee Report for the Proxy Statement

The audit committee is also responsible for the annual preparation of the audit committee report, which must be included in the company’s annual proxy statement to shareholders.

The audit committee report must include the following disclosures:

• whether the audit committee has reviewed and discussed the audited financial statements with management;
• whether the committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61;
• whether the audit committee has received the written disclosures and letter from the independent auditors required by Independence Standards Board, Standard No. 1;
• whether the audit committee has discussed with the independent auditors the independence of the independent auditors from management;
• based on the review and discussions above, whether the audit committee recommended to the Board of Directors that the audited financial statements be included in the company’s annual report on Form 10-K.

Other Required Proxy Statement Disclosures

In addition, the company must provide the following disclosures regarding its audit committee and its independent auditors in its proxy statement:

• the names of each audit committee member;
• the number of audit committee meeting sheld;
• whether the members of the audit committee are independent, as defined by the applicable securities exchange;
• whether the Company’s Board of the Directors has adopted a written charter for the audit committee;
• a brief description of the functions performed by the committee;
• the fees billed for professional services rendered by the independent auditors, separated according to fees for audit services, for information technology services and for other non-audit services, and whether the audit committee has considered whether fees billed for information technology services and other non-audit services are compatible with maintaining the auditors’ independence;
• if greater than 50%, the percentage of hours spent on the audit of the company’s financial statements by personnel of the independent auditor that are other than full-time, permanent employees of the independent auditor;
• at least once every three years, the company must include a copy of its written charter a san appendix to the proxy statement mailed to shareholders.

Conduct  and  Timing  of  Meetings

Set  Policies  Regarding  Required Notifications

Quarterly Review  of the  Adequacy  of  Internal  Controls

Monitor  the  Company’s  Internal  Audit  Function

Quarterly Review and Discussion of  Financial  Statements Disclosures

Address  Risk  of  Fraudulent  Reporting

Assess  the  Audit  Committee’s  Role  in  Monitoring  Compliance  with  the  Company’s Code  of  Conduct  and  the  Law

establish policies for when and how the audit committee will be notified of important events, such as:

- proposed changes in accounting principles;

- disagreements between management and the independent auditors;

- significant changes in management’s estimates;

- use of any non-GAAP accounting principles; and

- unusual financial statement adjustments above a specified dollar threshold;

Review  and  Address  Issues  Raised  in  Annual  Management  Letter

• promptly review with management, the internal audit department (if any) and the independent auditors all recommendations made bythe independent auditors in their annual management letter;
• approve a schedule for implementing any recommended changes as a result of the annual management letter and monitor compliance with the schedule;

Consider whether the audit committee should assume responsibilities in connection with monitoring compliance with the company’s code of ethical conduct (if it has one) and legal compliance, including the following:

- reviewing the company’s code of ethical conduct;

- reviewing reports that summarize the company’s monitoring of compliance

with its code of ethical conduct and legal compliance;

- reviewing the fairness of any proposed material transaction between

management of the company and the company (excluding transactions that

are subject to review by the Compensation Committee of the Board); and

- making recommendations regarding such transactions to the Board;

Review  Duties  and  Performance  of  Audit  Committee

• review and reassess at least annually the adequacy of the audit committee’s charter;
• review at least quarterly the committee’s intention, and ability, to fulfill all of the duties set forth in the audit committee charter;
• review at least annually the audit committee’s performance, including an assessment from the Board of Directors as a whole;

• monitor and discuss(with management, the internal audit department(if any) and the independent auditors, the company’s internal control structure to determine whether the company’s policies are working and are responsive to the current environment;
• evaluate weaknesses or breakdowns in the company’s internal control system, monitor control breakdowns of competitors and re-examine relevant areas within the company;
• evaluate whether internal controls are enforced consistently, requiring management to follow the same controls as general staff;
• evaluate the adequacy of the number of personnel devoted to internal control procedures, including whether key functions are segregated, and the quality of personnel in key internal control positions;