Section A

"MetroRail PLC" is a listed public utility company. To comply with corporate governance codes, it has established an Audit Committee.

Which of the following statements correctly describes the required composition of MetroRail PLC's Audit Committee?

Answer options:

It must consist entirely of Executive Directors.

It must consist of an equal mix of Executive Directors and external auditors.

It must consist entirely of independent Non-Executive Directors (NEDs).

It must be chaired by the Chief Executive Officer (CEO).

How to approach this question

Recall the corporate governance rules regarding the Audit Committee. Independence is key, meaning only NEDs should be members.

Full Answer

C.It must consist entirely of independent Non-Executive Directors (NEDs).✓ Correct

Under standard corporate governance codes (like the UK Corporate Governance Code), the audit committee should comprise at least three, or in the case of smaller companies, two, independent non-executive directors. Executives are excluded to maintain independence.

Common mistakes

Believing external auditors are members of the committee, rather than invitees.

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