The advantages and disadvantages of audit committees depend partly on who is providing the personnel within the appointed committee. There are three main ways in which an audit committee can be formed and appointed.
A committee brought in from a relating business or department has the advantage of being independent, as well as being cost-effective, in particular as a similar service could be provided in return.
The disadvantages in this scenario lie within the initial time required to set up and arrange the committee. This could also have adverse effects on delivery of audit plans if arrangements were shared.
Charging a group of individuals from an unrelated department within the company with the task of conducting the audit has the advantage of being independent, while control remains in house.
Company protocols are known and senior management is able to lead. It is also a relatively cost-effective option.
Here, disadvantages lie in the fact that detailed technical knowledge with respect to the audit's function may be lacking, resulting in additional cost by providing relevant personnel to provide assistance.
The other option is to appoint an external consultant or group of consultants to conduct the audit. The main advantage of this option is total independence of the performing auditor or audit committee.
This approach has the disadvantage of being expensive, as well as again requiring the provision of internal personnel to give assistance as and when required.
As a whole, the advantages and disadvantages of various forms of audit committees are pretty much balanced and it is up to each company to decide what best suits their needs.
In either case, various methods can be used to ensure a committee's effectiveness. One such method is known as the evaluation form method. This popular method includes processes ensuring independence and objectivity of members.
A committee brought in from a relating business or department has the advantage of being independent, as well as being cost-effective, in particular as a similar service could be provided in return.
The disadvantages in this scenario lie within the initial time required to set up and arrange the committee. This could also have adverse effects on delivery of audit plans if arrangements were shared.
Charging a group of individuals from an unrelated department within the company with the task of conducting the audit has the advantage of being independent, while control remains in house.
Company protocols are known and senior management is able to lead. It is also a relatively cost-effective option.
Here, disadvantages lie in the fact that detailed technical knowledge with respect to the audit's function may be lacking, resulting in additional cost by providing relevant personnel to provide assistance.
The other option is to appoint an external consultant or group of consultants to conduct the audit. The main advantage of this option is total independence of the performing auditor or audit committee.
This approach has the disadvantage of being expensive, as well as again requiring the provision of internal personnel to give assistance as and when required.
As a whole, the advantages and disadvantages of various forms of audit committees are pretty much balanced and it is up to each company to decide what best suits their needs.
In either case, various methods can be used to ensure a committee's effectiveness. One such method is known as the evaluation form method. This popular method includes processes ensuring independence and objectivity of members.
