What composition should the audit committee have?

The composition of the audit committee is crucial for its effectiveness in overseeing financial reporting and compliance, as well as ensuring the integrity of the financial statements. The correct answer highlights that all members should be Non-Executive Directors (NEDs), with the additional requirement that at least one member possesses financial expertise. This structure ensures objectivity and independence, as NEDs are not part of the company's daily operations and thus can provide an unbiased perspective on the financial matters at hand.

Having financial expertise within the committee is essential as it helps to ensure that the members are capable of understanding key financial issues, interpreting financial statements accurately, and engaging effectively with the external auditors. This combination of independence and expertise helps to enhance the credibility of the audit committee and supports effective governance.

Other choices suggest configurations that may lead to conflicts of interest or lack the necessary oversight. For instance, having extensive industry experience (as in the first option) without ensuring independence could lead to biases in oversight. Similarly, involving external consultants (as mentioned in another choice) may not guarantee the necessary governance as they may lack accountability compared to NEDs. The idea of including members from senior management could also compromise the committee's independence, potentially creating conflicts when assessing management's performance and financial reporting practices