Audit Committee Charter Template

Introduction

The Audit Committee Charter plays a crucial role in building a strong governance structure, rooted in the principles outlined by the COSO (Committee of Sponsoring Organizations of the Treadway Commission) Framework. This framework highlights the significance of internal controls, effective risk management, and ethical practices in achieving organizational goals. By leveraging the COSO Framework, the Audit Committee promotes transparency, accountability, and diligent oversight of financial reporting, compliance efforts, and operational processes. The Charter embodies these principles by clearly outlining the Committee's roles, authority, and operational guidelines, fostering a culture of trust and enhancing confidence in the organization’s governance practices.

Purpose Of Audit Committee Charter

The Audit Committee is empowered to oversee financial reporting, ensure adherence to regulatory requirements, and evaluate the effectiveness of internal controls. 

The primary objective of the Committee is to support the Board in carrying out its duties related to:

• Ensuring the accuracy and reliability of financial statements.

• Overseeing compliance with applicable legal and regulatory requirements.

• Evaluating the effectiveness of internal controls and risk management, with a specific focus on addressing the distinct financial and operational complexities associated with a SaaS business model.

The Charter provides a structured approach for the Audit Committee to execute its responsibilities transparently and effectively. It outlines the authority, scope, and procedures required to support the organization’s commitment to COSO’s five components control environment, risk assessment, control activities, information and communication, and monitoring activities.

Audit Committee Charter Template Roles and Responsibilities

1. External Audit and Financial Reporting

• Annual Review of Internal Audit Plan: Approve the Internal Audit Plan each year, prioritizing critical SaaS-related areas such as subscription management, data security, cybersecurity, and platform availability.

• Assessment of Internal Audit Reports: Regularly review internal audit reports to evaluate the effectiveness of controls related to financial reporting, SaaS compliance, and customer data protection.

• Ensuring Audit Independence: Confirm that the internal audit function operates independently of management and has unrestricted access to all necessary information to assess the control environment effectively.

2. Risk Management

• Oversight of Risk Management Framework: Supervise the organization’s risk management system, ensuring it addresses SaaS-specific risks like platform downtime, data breaches, and intellectual property concerns.

• Evaluation of Risk Mitigation Processes: Review management’s strategies for identifying, assessing, and mitigating risks, including those related to cybersecurity, global data protection laws (e.g., GDPR), and financial impacts from customer attrition or subscription cancellations.

• Regular Risk Assessment: Conduct periodic reviews of risk assessments, focusing on areas such as platform reliability, compliance with service-level agreements (SLAs), and adherence to SaaS industry best practices.

3. Regulatory Reporting and Compliance

• Compliance Monitoring: Oversee the organization’s adherence to relevant laws, regulations, and industry standards, particularly in areas like information security, data protection, and SaaS operations.

• Validation of Financial and Regulatory Reports: Ensure that financial and regulatory reporting is accurate, complete, and compliant with applicable standards, including SaaS-specific financial models.

4. Whistleblower Disclosures

• Whistleblower Policy Review: Approve and monitor the organization’s whistleblower policy to ensure employees can safely report concerns about financial irregularities, compliance breaches, or risks to the SaaS platform.

• Complaint Resolution Oversight: Ensure the organization has effective procedures for addressing whistleblower complaints, resolving issues transparently, and protecting individuals from retaliation.

5. Relationship with External Auditors

• Recommendation of External Auditors: Recommend the appointment, compensation, and potential dismissal of external auditors, ensuring they are equipped to address SaaS-specific financial complexities.

• Management of Audit Strategy: Oversee the external audit strategy to ensure it addresses key areas such as revenue recognition, customer contract liabilities, and SaaS-specific tax considerations (e.g., VAT/GST compliance).

• Evaluation of Audit Insights: Review external auditor feedback on deficiencies related to platform security, subscription management, and SaaS accounting practices.

6. Tax Risk Management

• Tax Governance Oversight: Monitor the organization’s tax governance framework, particularly regarding SaaS-specific issues like sales tax (VAT/GST), cross-border tax compliance, and the impact of evolving tax regulations on subscription-based models.

• Board Communication: Ensure tax risks are effectively identified, managed, and reported to the Board.

7. Additional Responsibilities

• Facilitating Communication: Promote open communication on audit and financial governance matters among the Board, senior management, and internal and external auditors.

• Evaluation of Financial Governance: Provide the Board with assessments of the effectiveness of risk management, financial reporting, and internal controls, with a focus on SaaS operations.

• Review of Financial Statements: Recommend the approval of annual and interim financial statements, ensuring alignment with SaaS business practices.

• Post-Acquisition Reporting: Ensure that major acquisitions are reviewed, with a comprehensive report provided to the Board within one year of the transaction.

Meetings In Audit Committee Charter Template

The Committee is expected to hold no fewer than four meetings each year, with additional meetings as required. It is essential for the Chief Financial Officer (CFO) to attend all scheduled meetings, alongside both internal and external auditors, to ensure comprehensive oversight and collaboration. 

A quorum for the meeting will be established by the presence of a majority of the Committee members, facilitating effective decision-making. In situations where the Chair is unable to fulfill their responsibilities, they have the authority to appoint an external individual to temporarily assume the role of Chair, ensuring continuity in leadership.

The Committee has the flexibility to convene either in person or through video and teleconferencing, accommodating various circumstances to ensure member participation. Additionally, if urgent matters arise between meetings, the Committee may reach out-of-session agreements via email, provided that these arrangements have the Chair’s prior consent.

Conclusion

The Audit Committee Charter serves as a foundational document that outlines the committee's purpose, roles, and responsibilities in ensuring effective oversight of financial reporting, risk management, compliance, and governance. By adhering to the principles outlined in the charter, the committee supports the Board of Directors in fostering accountability, transparency, and sound decision-making within the organization. Regular reviews and updates to the charter ensure it remains relevant and aligned with evolving regulatory requirements, industry standards, and organizational needs. This enables the committee to fulfill its duties effectively, contributing to the overall success and integrity of the organization.