Audit Committee Charter: Guidance and Examples

Audit committees operate more effectively with charters that explicitly outline their purpose and procedures. This brief, a part of the Board and Committee Toolkit series, offers guidance and sample language to help audit committee members formulate, approve, and update their guidelines.

General Guidance

What is the purpose of an audit committee charter?

The purpose of any committee charter is to describe the committee’s role, structure, responsibilities, membership requirements, and scope of authority. In the case of public companies, audit committees are required to have these charters. In fact, both the New York Stock Exchange (NYSE) and Nasdaq have adopted rules describing listing criteria in companies’ audit committee charters. NYSE listing standards describe the content of an audit committee charter in great detail, noting that these fall solely under the purview of audit committees and may not be allocated to a different committee of the board.

Audit committee charters do not exist in a vacuum. For example, the Code of Business Conduct for Occidental Petroleum describes various policies covering risks, ranging from sexual and racial harassment to risks related to workplace violence. The code offers a number of reporting channels, and also states,

“The Audit Committee of the Board of Directors may be contacted if you feel that appropriate action has not been taken using the reporting channels above. Concerns reported directly to the Audit Committee should be marked ‘Confidential’ and addressed to the Chairman of the Audit Committee. . . .”

Audit committee leaders and members should be familiar with all areas described in a company’s code of conduct, and be prepared to respond to reports from areas that may not be considered directly within the company’s domain.