ANAO - Public Sector Audit Committees

3.2. The Audit Committee Chair

The chair of the audit committee plays a pivotal role in the overall effectiveness of the audit committee. The chair of the audit committee should not also be chair of the board. [29]

The Chief Executive/Board must appoint one of the committee members as Chair of the Audit Committee. [30] When appointing the Chair, the Chief Executive/Board should particularly consider the personal qualities and abilities of the potential Chair to lead discussions, encourage participation of other members, and conduct meetings in a manner that demonstrates a desire to establish effective communications with all stakeholders. The following table lists the qualities of a better practice Audit Committee Chair.

Qualities of a better practice Audit Committee Chair
The Chair would be expected to: have the active support of, and maintain regular dialogue with, the Chief Executive/Board; ensure the committee undertakes its responsibilities as outlined in the committee charter; maintain an open and constructive relationship with senior management, internal and external audit, and other entity committees; have a clear understanding of the responsibilities of the committee, its position within the entity’s governance structure and the entity’s work, and maintain a dialogue with senior managers about the committee’s work; arrange for committee members to maintain an up-to-date knowledge of the entity and its activities; be a good communicator who facilitates discussion and focuses on the important matters; effectively plan and manage committee meetings; and devote sufficient time to prepare for committee meetings and to engage with the Chief Executive/Board, senior management and other stakeholders outside committee meetings.

Qualities of a better practice Audit Committee Chair

The Chair would be expected to:

have the active support of, and maintain regular dialogue with, the Chief Executive/Board;
ensure the committee undertakes its responsibilities as outlined in the committee charter;
maintain an open and constructive relationship with senior management, internal and external audit, and other entity committees;
have a clear understanding of the responsibilities of the committee, its position within the entity’s governance structure and the entity’s work, and maintain a dialogue with senior managers about the committee’s work;
arrange for committee members to maintain an up-to-date knowledge of the entity and its activities;
be a good communicator who facilitates discussion and focuses on the important matters;
effectively plan and manage committee meetings; and
devote sufficient time to prepare for committee meetings and to engage with the Chief Executive/Board, senior management and other stakeholders outside committee meetings.

It is also important for the Chair to have a good understanding of the entity and the Chief Executive/Board should take steps aimed to ensure the Chair is provided with sufficient initial and ongoing briefings and information about business developments.

There is merit in the Chair being appointed for a minimum period of three years, with a one or two year extension option. A term of three to five years provides the opportunity for the Chair to contribute most effectively and provide a level of stability to the leadership of the committee. There may be circumstances where it is appropriate to extend the term of appointment beyond five years.

Better practice tip: Audit Committee Chair responsibility

The Chair of the Audit Committee should be alert to any gaps in the knowledge and expertise of committee members about the entity and its activities and make arrangements for committee members to maintain up-to-date knowledge.

It is appropriate for a Deputy Chair to be appointed so the nominated member is able to act as Chair if the Chair is unable to attend meetings.

In CAC entities that are governed by a Board, the Chair of the committee is required to be a non-executive director.[31]

In FMA agencies it is recognised that Audit Committees will generally include one or more members who are managers of the agency. As such, the appointment of an external member as Chair strengthens the actual and perceived independence of the committee. Sometimes, for example, in large and complex entities, it may be appropriate for the external member to first serve as a member of the Audit Committee, to gain the necessary knowledge and the respect and confidence of the Chief Executive and other committee members, before assuming the role of Chair. If an internal member is appointed as Chair of an FMA agency committee, the Audit Committee can put in place arrangements to reduce the risk of a real or perceived lack of independence. These could include:

providing, in the committee charter, the authority for all committee members to have access to the Chief Executive and reasonable access to entity staff;
requiring at least one, and possibly more, external members be appointed to the committee; and
when there is more than one external member, there be a requirement that at least one of these members be present at committee meetings in order to form a quorum.

[29].Audit Committees A Guide to Good Practice, The Auditing and Assurance Standards Board, the Australian Institute of Company Directors and the Institute of Internal Auditors of Australia, 2007, p. 35.

[30].When a new Chief Executive/Chair of the Board is appointed, it would be expected that the Audit Committee Chair would discuss the tenure of his or her appointment with the new Chief Executive/Chair of the Board at an appropriate time.

[31].See CAC Regulations Audit committees for Commonwealth authorities.

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