establishing an audit committee

Sec 42 of Companies (Auditing & Accounting) Act 2003 & Article 41 of 8th EU Directive sets out
the requirements beyond doubt company types to establish an audit committee. These provisions
have not even been signed into law, even so the Department of Enterprise Trade & Employment
have revealed that draft regulations adopting the provisions of the two 2003 Act and 8th Directive,
with a few amendments, will likely be published in the end of July 2009 and signed into law prior
to the end of 2009.
What companies are needed to establish an Audit Committee?
The requirement to ascertain an audit committee relates to all public limited companies, qualifying
large private companies, relevant undertakings and public interest entities.
Section 42 makes it necessary that all public limited companies whether listed or otherwise,
establish and adequately resource an Audit Committee with certain responsibilities as defined in
the Act unless this is a wholly owned subsidiary undertaking of some other public limited
company.
Additionally, qualifying large private limited companies and relevant undertakings must either
establish an Audit Committee with or several of the defined responsibilities, or decide not to do
so.
A "qualifying large private company" is described as either:
A private company limited by shares whose balance sheet total exceeds ?25 million and whose
amount of turnover exceeds ?50 million within both the latest financial year as well as the
immediately preceding financial year,
or
A non-public company limited by shares when the company as well as its subsidiary undertakings
together match the above balance sheet and turnover criteria.
A "qualifying relevant undertaking" is described as either:
An unlimited company or partnership whose balance sheet total exceeds ?25 million and whose
level of turnover exceeds ?50 million within both the newest financial year and the immediately
preceding financial year, where all the members who do not possess a limit on their own liability
are:
Companies limited by shares or by guarantee, or equivalent bodies not governed by Irish Law or
a variety of both there groups of body or
Bodies of a type referred to in subparagraph (i) that happen to be governed from the laws of an
EU Member State or are equivalent bodies with a comparable legal form which are governed by
the laws of the Member State or
A combination of the categories of body mentioned inside the preceding subparagraphs (i) and (ii)
Or
a limitless company or partnership from the type described in paragraph (c ) in case the company

or partnership and every one of its subsidiary undertakings together satisfy the above balance
sheet and turnover criteria.
Article 2.13 of your Directive defines 'public interest entities' as including:
Entities which may have issued transferable securities admitted to trading on the regulated
market governed from a Member State (4),
Credit institutions (5) (i.e. banks and building societies) and
Insurance undertakings (6).
What companies are not required to get an Audit Committee?
Every private company limited by shares whose balance sheet and turnover totals are below the
aforementioned limits
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Every unlimited company or partnership in the type described above whose balance sheet and
turnover totals are less than the previously mentioned limits.
All of the other kinds of corporate body not included i.e. companies limited by guarantee and nonEU Member State and branches.
Audit Committee Requirements
The Audit Committee must contain at least 2 members.
The 8th Directive necessitates that a minimum of one member of the Audit Committee needs to
be independent and must be qualified in accounting or auditing.
A Director qualifies for appointment to the committee if they:
Is or has not been a worker from the company or subsidiary in the last 3 years
Is not the chairperson from the Board of Directors.
The Audit Committee requires appropriate term of reference that
Have been prepared and authorized by the Board of Directors
Are sent to the shareholders at the AGM
Are reviewed annually from the board
Specify just how the committee will discharge its duties & responsibilities
Offer the a programme of meetings together with the management, auditor and internal auditor
Functions & Responsibilities of the Audit Committee
The key functions of your Audit Committee include:
Overseeing financial reporting
Overseeing the method linked to the company's financial risks and internal control & audit
Overseeing the external and internal audit processes.
Review and monitor the independence of the auditor & audit firm
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