Boards of Directors and Audit Committee

Roles of Directors and Duties of an Audit Committee

The Board of Directors is an organization's or company's governing body that is mandated with the task of ratifying all major decisions. Generally, the Board of Directors handles all issues of major strategic importance to an organization or company. This implies that the Board of Directors needs to be involved, engaged, and supportive in all issues of strategic importance, especially with regards to governance. However, the board comprises of directors who can play a number of several important roles as board members. In contrast, audit committees play a significant role in improving audit quality since these bodies play a crucial role in oversight and monitoring management. This paper examines the important performance-centered roles that directors may play within a board and the significant duties of an audit committee with regards to organizational governance.

Performance-oriented Roles that Directors May Play within a Board

As previously mentioned, the Board of Directors is the governing body of a company or organization and works for the company by handling all matters of strategic importance ("The Board of Directors," 2012). This body must work for the company's or organization's best interests in order to enable the organization deliver on its promises to stakeholders. While the Board of Directors does not necessarily run an organization or company, it works to ensure that the appropriate team is established to handle the organization's daily affairs and activities. In order to achieve this objective, this governing body is made of directors with various roles and responsibilities. Given their various personal attributes and competencies, directors can play a variety of important roles as member of boards.

In essence, directors can play various important performance-oriented roles within a board. One of these performance-related roles of members of the Board of Directors is decision making, which entails making important and suitable choices for the organization or company with regards to its vision, mission, and tactics (Arnwine, 2002, p.20). Board members play a crucial role in the decision making process through providing their opinions and perspectives regarding various issues of strategic importance to the organization or company. Decision making is an important performance-related role of board members since it is the basis through which organizations strategies are determined and carried out. In the process of decision making, each member of the board provides significant insights regarding issues of strategic importance to the organization.

The second performance-related role of board members is to ensure financial accountability of the organization. In this case, board members help ensure that organization's expenditures are in line with the respective functions as well as the overall goal of the company or organization. As result, each board member provides financial accountability through playing a crucial role in the formulation of policies and approval of budgets. For instance, the directors of Home Depot ensure financial accountability through visiting the company's stores, especially those located outside their home state (Sonnenfeld, 2002).

The third performance-related role of members of Board of Directors is to conduct performance review, which sometimes include a complete board evaluation. The performance review, which is conducted as part of ensuring organizational accountability, sometimes involve self-assessments by individual directors or peer reviews carried out by directors on behalf of another or the entire team. The Board of Directors can also conduct this role by appointing governance committees who conduct the evaluations and provide findings to the board. At Home Depot, performance review is conducted by individual members of the board through their visits to each of the company's stores. The individual members of this company's board evaluate the use of time, utilization of suitable skills, knowledge of the firm and its industry, awareness of important personnel, and their overall level of preparation. These factors are included in the evaluation with the goal of determining whether each stores of Home Depot works towards realization of the overall business and performance goals and objectives.

Fourth, board members have the performance-related goal of fiduciary duty of safeguarding the organization's assets and investments from various stakeholders (Boland & Hofstrand, n.d.). Each member is expected to carry out this role in the interest of the company as well as those of individual members or investors. In this case, each board member ensures the organization's assets are kept in good order and utilized in a manner that promotes the realization of established goals. Board members at Home Depot carry out their fiduciary duty through monitoring and control during the periodic reviews.

Duties of Audit Committee

As previously mentioned, audit committees play a significant role in improving audit quality within an organization or company since these bodies help build confidence and effectiveness in the integrity of financial reporting ("Role of the Audit Committee," n.d.). Generally, audit committees play a vital role in establishing a suitable environment for quality auditing through creating an environment based on integrity, transparency, and respect between an organization's management and auditors. Audit committees achieve this goal through performing various duties related to enhancing the quality of auditing.

One of the important duties of an audit committee is to supervise auditor's work by understanding the audit strategy, handling major audit risks, and ensuring auditors demonstrate suitable professional skepticism. As part of this duty, the audit committee also ensures that the auditor has an effective autonomous mindset from management and is objective in his/her responsibilities. Through examining these factors, the audit committee oversees the auditor's work by determining his/her effectiveness of the audit.

Secondly, the audit committee has the responsibility of providing oversight of internal control, financial reporting, internal and external auditors, risk management, ethics, and compliance ("A New World of Corporate Governance," n.d.). The committee achieves this goal by ensuring financial statements are credible, transparent, and logical. The committee also works to ensure the process of risk management is comprehensive and constant instead of being periodic and partial. The audit committee is also responsible for assisting an organization to remain committed to strong and effective internal controls through a top-bottom approach across all organizational departments.