Audit Committee Functions

Evangelical Council for Financial Accountability
This article provided by the Engstrom Institute

ECFA Standard 2 requires that the Board or a committee consisting of a majority of independent members shall review the annual audit and maintain direct communication between the board and the independent certified public accountants.

If an audit committee is utilized, the purpose and responsibilities of the committee are to:

1. Make recommendations for the appointment of the independent auditors.
2. Review, evaluate, and oversee any recommendations the independent accountants make concerning internal accounting and management controls.
3. Review the annual statements with the independent accountants prior to submitting the statements to the board. This meeting should determine the independent accountants' level of satisfaction with the disclosure and content of the financial statements, and their assessment of internal controls.
4. Assist the Board in its fiduciary responsibilities of accounting and reporting.
5. Maintain communication between the board and the independent accountants by meeting on a regularly scheduled basis.
   
   The independent accountants must provide sufficient information and/or recommendations to the audit committee to permit the board to analyze the financial statements and make any necessary adjustments in operations.

The audit committee should consist of at least three members—enough to provide diversity in opinion and background, yet not so many as to be cumbersome. Adequate financial expertise also should be represented on the committee.

The committee should be independent; i.e., the majority of the committee should be independent. The committee chairman should not be an employee of the organization. The auditor should not serve as a member of the committee, but should serve in an advisory capacity only.

Missionaries, volunteers, and other staff who have raised their own support must be in the minority on the committee. However, persons who volunteer a substantial number of hours of work each year can meet the "nonemployee/staff" qualification as long as their services are not in decision-making roles.

Staff individuals, such as the chief financial officer, should normally be invited to audit committee meetings to answer questions and to provide information. When the audit committee meets with the independent accountants, any staff person should be excused from the discussion for at least part of the time. This provides an opportunity for the independent accountants to give an objective evaluation of the financial staff's performance and ability to fulfill the financial management requirements of the organization. All meeting records should be presented to the full board of directors.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer or other professional.

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