Members of the audit committee take on significant responsibility and potential liability. Other Board members and officers will have liability exposure if the audit committee fails to function properly. Here are some questions they should ask to rate audit committee performance.

• Has the board of directors or the audit committee assessed the financial literacy of audit committee members to assure compliance with the applicable stock exchange rules?
  
• Has the board of directors or the audit committee determined all audit committee members are independent to assure compliance with applicable stock exchange rules?
  
• Does the audit committee have an orientation program to educate new members on their responsibilities?
  
• Does the audit committee participate in a continuing education program to enhance audit committee members' understanding of relevant accounting and reporting areas?
  
• Did management, the external auditors, and the board of directors provide input on the audit committee charter and meeting agendas?
  
• Are audit committee meetings long enough to cover all agenda items?
  
• Does the audit committee review significant issues with management and the external auditors prior to quarterly and annual earnings releases?
  
• Is the audit committee authorized to retain independent counsel, accountants, or other advisors to assist in investigating any matters within the committee's scope, as appropriate?
  
• Does management provide the audit committee with communications received from governmental agencies relating to alleged violations or noncompliance?
  
• Has the audit committee met periodically with appropriate officers to better understand the risks facing the company and how those risks are monitored for possible financial reporting implications?
  
• Has the audit committee reviewed and understood the processes used by management, the external auditors, and the internal auditors to identify and respond to risks related to suppliers, customers, outsourced operations, and other third parties that affect the company's operations?
  
• Has the audit committee questioned management and the external auditors about how they assess the risk of material misstatement, what the major risk areas are, and how they respond to identified risks?
  
• Does the audit committee understand the processes used by management, the external auditors, and the internal auditors to identify and respond to risks related to subsidiaries, joint ventures, affiliates, off-balance-sheet transactions, and related entities?
  
• Does the audit committee understand the primary threats to the company's business and management's plans to address such risks?
  
• Has the audit committee obtained sufficient information related to important financial reporting issues, such as the use of complex financial instruments, areas of subjective judgment, unusual transactions, and changes in accounting policies?
  
• Has the audit committee read the company's financial statements, and MD&A to determine if anything is inconsistent with their knowledge, including areas such as liquidity, unusual transactions, and off-balance-sheet arrangements?
  
• Does the audit committee understand why critical accounting principles were chosen and how they were applied, and consider the quality, not just the acceptability, of financial accounting and reporting?
  
• Does the audit committee understand the process used by management to identify related parties and consider whether related-party disclosures have been disclosed?
  
• Has the audit committee obtained from management and the external auditors an understanding of significant transactions and how they were accounted for, including acquisitions, dispositions, and special-purpose entities?
  
• Has the audit committee reviewed all unrecorded audit adjustments with management and the external auditors and understand why they were not recorded?
  
• Has the audit committee asked the external auditors about pressures on management that may have an impact on the quality of financial reporting, such as earnings targets and performance measures?
  
• Has the audit committee asked management and the external auditors whether the audit team assigned to the engagement has sufficient experience and resources?
  
• Has the audit committee considered the volume and nature of nonaudit services provided by the external auditors in assessing the external auditors' independence?
  
• Has the audit committee reviewed the external auditors' audit plan prior to commencement of the audit?
  
• Has the audit committee met with the external and internal auditors outside the regularly scheduled meetings to encourage open and frank dialogue?
  
• Has the audit committee told the external auditors the committee expects the external auditors to contact the committee when necessary?
  
• Does the audit committee believe management is committed to promoting high-quality financial reporting and strong internal controls?
  
• Has the audit committee received enough information to review, understand, and assess the organization's system of internal controls, including information technology controls?
  
• Has the audit committee asked the external auditors and management about the experience and sufficiency of staff in the finance and internal audit organizations?
  
• Did the audit committee review the internal audit plan?
  
• Did the audit committee review the management recommendation letters written by the internal and external auditors, to ensure all significant matters raised are properly addressed?
  
• Did the audit committee assess the effectiveness of the internal audit department?