Oversight of the Independent Auditor

As fiduciaries representing the interests of shareholders and other stakeholders, corporate directors oversee a company’s financial performance, among other areas.

In addition, because a key indicator of financial performance is the audited financial statement, directors oversee the work of the company’s independent—or, external—auditor, playing a key role in selecting, evaluating, and compensating the audit firm. While these responsibilities can apply to companies of every type, they are especially critical in public companies, which must meet certain requirements related to auditor oversight, which generally is accomplished through the work of an independent audit committee. Among other duties, audit committees oversee both the external auditor (typically called the “auditor”) and the company’s internal control system, which may include an audit function accomplished by one or more employees, referred to as “internal auditors.”