Audit Committees under the Companies Act 2014

Section 167 introduces a requirement for the directors of a company over a particular size to either establish an audit committee or to explain in the directors’ report why they have not decided to establish an audit committee.

Public Interest Entities were already required to have an audit committee.


Size thresholds for audit committee requirement

The requirement in section 167 pertains to companies which meet the following conditions for the most recent financial year and the year immediately preceding that year:

Balance sheet total *                                      €25 million

Turnover                                                        €50 million

 *defined in section 350 as meaning the aggregate of the amounts shown as assets in the company's balance sheet.

The directors of a company which is a parent should establish an audit committee if the balance sheet total and turnover of the company and its subsidiaries taken together, for the relevant periods, meet the size thresholds set out above. 


Responsibilities of the audit committee

The audit committee responsibilities must include:

  • Monitoring the financial reporting process;
  • Monitoring the effectiveness of the company’s systems of internal control, internal audit and risk management;
  • Monitoring the statutory audit of the company’s statutory financial statements; and
  • The review and monitoring of the independence of the statutory auditors and in particular the provision by the auditors of additional services to the company.

The audit committee shall make recommendations to the board in relation to the appointment of the statutory auditors and any proposal by the board in that regard will be based on the audit committee’s recommendation.

Key matters arising from the statutory audit of the company’s financial statements are required to be reported to the audit committee by the auditors.  In particular the auditors will report to the audit committee on material weaknesses in internal control in relation to the financial reporting process.

Composition of the audit committee

In relation to the composition of the audit committee section 167 requires that at least one of the members must be a non-executive director who is independent of the company.   A non-executive director is a director who is not involved in the daily management of the company.    In order to be independent the non-executive director must not have, or have had in the 3 years prior to appointment to the audit committee, either a material business relationship with the company or have held a position of employment in the company.  

The independent non-executive director serving on the audit committee is required to have competence in accounting or auditing.

The requirement for a member of the audit committee to be an independent non-executive director indirectly creates the requirement for a company meeting the size thresholds to have an independent non-executive director on its board (unless the directors decide against establishing an audit committee).


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