Which role does the audit committee play in risk disclosures?

• A. The audit committee approves executive compensation.
• B. The board alone handles all risk disclosures.
• C. The audit committee has no role in risk disclosures.
• D. The audit committee oversees internal controls and risk disclosures.

Answer: (D)

The audit committee’s role is to oversee the reliability of financial reporting, including how risks are disclosed. It ensures that risk disclosures in financial statements and regulatory filings accurately reflect significant risks, uncertainties, and the effectiveness of associated controls. By reviewing management’s risk assessment, monitoring internal controls over financial reporting, and coordinating with internal and external auditors, the committee helps ensure disclosures are complete, transparent, and credible. This protective oversight aligns with fiduciary duties to shareholders and regulators, making the duty to oversee internal controls and risk disclosures the correct description of the audit committee’s role. The other options misplace responsibilities (executive compensation typically falls to a compensation or governance committee) or deny the committee’s important oversight role.