What is the purpose of an audit committee's oversight in corporate governance?

• A. To manage daily operations and hiring.
• B. To ensure accuracy of financial reporting, independence of external auditors, and effectiveness of internal controls.
• C. To set executive compensation.
• D. To supervise marketing campaigns.

Answer: (B)

The essential function of an audit committee in corporate governance is to supervise financial reporting and related processes to ensure accuracy and integrity. This role supports the board’s fiduciary duty to shareholders by providing objective scrutiny of the financial statements and the controls that generate them. The committee reviews the selection and independence of external auditors, approves the audit plan, evaluates audit results, and ensures management follows up on identified issues. It also oversees the internal controls over financial reporting, including the effectiveness of risk management and the internal audit function, to reduce the risk of misstatements or fraud.

Daily operations and hiring are tasks for management, not the audit committee. Setting executive compensation is typically handled by a compensation or remuneration committee, and supervising marketing campaigns falls under operations or marketing functions. The described focus—financial reporting accuracy, auditor independence, and internal control effectiveness—precisely aligns with the audit committee’s governance role.