Audit Committee Referral
Definition
A mandate from the board's audit committee to conduct a forensic investigation. Because the audit committee is independent of management, this pathway insulates the forensic auditor from management pressure and allows findings to be reported to an independent body. It is the preferred pathway when senior management may be implicated.
- Source
- The board's audit committee
- Key property
- Independent of management
- Reporting line
- Findings go to an independent body
- Preferred when
- Senior management may be implicated
Common questions
Why does the reporting line matter so much for an audit committee referral?+
If a forensic investigation reports through the normal management chain and a senior executive is a subject of that investigation, that executive could suppress or influence findings. Reporting directly to the audit committee removes that conflict of interest.
What alternative referral pathways exist, and why might they be used instead?+
Investigations can also be triggered by a whistleblower hotline report, external regulator request, or a direct management request. Management-initiated referrals are appropriate when the suspected issue sits below senior leadership and does not raise the same independence concern.
Related terms
- Engagement Trigger
- The event, report, or observation that initiates a forensic audit engagement. Common triggers include whistleblower reports, regulatory referrals, audit anomalies, and management...
- Predication
- The reasonable basis that justifies opening a fraud examination. The ACFE holds that no examination should begin without adequate predication, meaning a...
- Referral Pathway
- The institutional or personal channel through which the trigger reaches the forensic auditor. Pathways include the audit committee, internal audit, external auditor,...
- Regulatory Referral
- A direction from an external oversight body such as the US Securities and Exchange Commission, the UK Financial Conduct Authority, India's Serious...
- Whistleblower
- An individual, typically an employee or former employee, who reports suspected misconduct to an internal hotline, audit committee, regulator, or law enforcement...