Audit committees must include which type of directors?

The correct answer is that audit committees must include independent non-executive directors. This requirement is grounded in best practice guidelines and regulatory frameworks, which emphasize the importance of independence in enhancing the robustness and transparency of the financial reporting process.

Independent non-executive directors play a crucial role in audit committees as they bring an unbiased perspective that is essential for objective oversight. Their independence from the company's management helps to ensure that potential conflicts of interest are minimized, fostering an environment where financial disclosures can be scrutinized without undue influence. This is particularly important in areas such as the assessment of financial risks, the integrity of financial statements, and the selection of auditors – all of which are key functions of the audit committee.

Moreover, the presence of independent non-executive directors is often mandated by regulatory standards like the UK Corporate Governance Code, which aims to enhance corporate governance and accountability. By including directors who are not involved in the day-to-day running of the company, the audit committee is better positioned to challenge management's assertions, question judgments made during financial reporting, and ensure that rigorous processes are followed.

In contrast, executive directors, non-independent directors, and shareholder representatives may have varying degrees of ties to the company that could compromise their objectivity and independence, raising concerns