The audit committee is a committee composed of a company’s board of directors in charge of overseeing the company’s auditors, financial reporting, and disclosures. 15 U.S.C. § 78c(a)(58) defines an audit committee as “a committee (or equivalent body) established by and amongst the board of directors of an issuer for the purpose of overseeing the accounting and financial reporting processes of the issuer and audits of the financial statements of the issuer.”
Under Section 301 of the Sarbanes-Oxley Act, national securities exchanges, for example the NYSE and NASDAQ, must require companies to have an audit committee to be listed, effectively requiring public companies to have an audit committee. Securities and Exchange Commission (SEC) Rule 10A-3 directs such securities exchanges to require companies to, among other things, ensure the independence of audit committee members and regulate the selection of the company’s auditor. The independence requirement precludes directors who receive compensation from the company other than for board service and who are affiliated with the company or any subsidiary.
[Last updated in February of 2022 by the Wex Definitions Team]