The New York Stock Exchange rules require that the audit committee must have a minimum of three members, however there is no upper limit on how large the audit committee can be. Deciding the optimum number of members in the audit committee can get a bit tricky. If a company meets the financial independence requirements, even the entire board of directors can be a part of the audit committee. However, one thing to note is that each member of the audit committee must also be a part of the board of directors.

A large audit committee can lead inefficient decision making and may tend to become bureaucratic. Similarly, a small audit committee of say just three members may not be able to manage audit and related compliants at a time. So how does one select the optimum number of audit committee members. There is no right number, since one size does not fit all. It all depends upon how a company wishes to manage the audit & related compliants. I am listing down some strategic questions & thoughts which can help in better deciding the right number of members for a company.

1. Within the senior management functions, how much responsibility are the audit committee members willing to assume?

2. A small committee can be used in cases where the board of directors are involved in other strategic issues. A small committee can appraise the board regularly on the issues.

3. A large committee is useful, where the board of directors want to get directly involved in the affairs. However, as I said earlier, large committees tend to be bureaucratic.

4. Time the board members are willing to devote for the audit committee functions can be a deciding factor in deciding the right number of audit committee members. Being on the audit committee can sometimes result in the board members not able to concentrate on essential board functions.

Finally, I would like to add my two cents, in my opinion a large committee does tend to give the shareholders a greater sense accountability and responsibility from the audit committee.

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