Academic journal article Journal of Accountancy

Audit Committee Effectiveness Checklist

Academic journal article Journal of Accountancy

Audit Committee Effectiveness Checklist

Article excerpt

The oversight responsibilities of audit committees established by company boards of directors have become increasingly important in recent years. The National Commission on Fraudulent Financial Reporting (the Treadway commission) focused attention on the role of the audit committee in overseeing the financial reporting process, and the Securities and Exchange Commission and the New York Stock Exchange have issued general guidelines for audit committees.

A law--the first of its kind- setting requirements for certain audit committees was passed in 1991. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires banking institutions with assets of over $150 million to have audit committees made up entirely of outside directors independent of management. Also, the audit committee must include members with banking or related financial experience.

Following are questions designed to help rate audit committee effectiveness.

1. Is the audit committee composed entirely of outside directors with no management connections?

2. Has the board of directors defined in writing the audit committee's objectives, range of authority, duties and responsibilities?

3. Do audit committee meetings involve management, internal auditors and independent auditors?

4. Does the audit committee also meet privately and separately with these parties during the year?

5. Does the audit committee meet with independent auditors before an audit to determine the scope of and the approach to the upcoming audit? …

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