Über die Autorin bzw. den Autor

Curtis C. Verschoor, CPA, author of eleven accounting books on audit committees and auditing, is the Chairman and CEO of C.C. Verschoor and Associates, Inc. He is an audit committee chair, researcher, consultant, and expert witness on assignments concerning corporate governance, corporate audit management, business, and professional ethics. He is a research professor of accounting at DePaul University and has been a CFO and a controller at several large corporations, including Baxter and Colgate-Palmolive. He has also published numerous journal articles on these subjects.

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Audit Committee Essentials
 
In response to the Sarbanes-Oxley Act, increased oversight burdens have been placed on boards of directors. Even the boards or trustees of many privately held and not-for-profit corporations have adopted a number of these practices as a measure of best corporate practice. The need has never been greater for audit committees to assume primary responsibility for some of the most important duties of the boards of directors and to report regularly to the full board. Providing indispensable and authoritative guidance, Audit Committee Essentials covers the roles and responsibilities of the audit committee and explains why risk management and internal control are so critical and how the audit committee can work to make them even more effective.
 
Avoiding complex jargon and legalese, this concise yet comprehensive volume emphasizes the oversight of the financial reporting process and related controls as well as the oversight of ethics and the independent and internal audits. Here, board members, audit committee members, and managers will find sound information about legally mandated matters affecting audit committees, as well as best practices advanced by thought leaders in the field of governance, with a focus on the requirements and responsibilities within the U.S.
 
Ideal for both profit and not-for-profit corporations, Audit Committee Essentials explains the essentials of the current status of audit committee formation requirements, operating guidelines, and specific respons-ibilities, including:
* The historical development of audit committees, from their earliest origins in the 1940s to the present
* Pertinent information from such highly respected legal sources as the Model Business Corporation Act, the Principles of Corporate Governance, and the 2007 edition of the Corporate Director's Guidebook
* The personal characteristics of an effective board and audit committee member
* The specific duties of audit committees that are prescribed by law, regulation, or rule
* An overview of the audit committee duties that have emerged as best practices by means of reviews and analyses of corporate governance leaders and subject matter experts
* Legally required characteristics audit committees and their members should possess
* The critical importance to strong corporate governance of an ethical culture
 
Brimming with decision tables, checklists, and other valuable practice aids, Audit Committee Essentials provides a comprehen-sive overview of audit committee essentials in a concise and readable format.

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Praise for Audit Committee Essentials
 
"Audit Committee Essentials is an excellent and comprehensive resource, documented with key references and illustrated with real-life company examples for all types of commercial and nonprofit enterprises. Dr. Verschoor brings into focus the intertwined impact of risk management, internal controls, and ethics on oversight responsibilities for both the audit committee and the entire board of directors. From my personal perspective as an audit committee member and as a director of both profit and nonprofit entities, this book should be required reading for corporate management, boards of directors, and their committees."--George K. Gill, Chairman and CEO of PetAg, Inc.;Director and member of the Investment and Audit Committees of the United Methodist Foundation of Northern Illinois
 
"Maintaining the highest ethical standards is critical to the success of not-for-profits in today's world. Dr. Verschoor's book provides a practical, highly prescriptive approach to ensuring that governance processes meet the highest expectations of managers, employees, volunteers, contributors, and other stakeholders. I am very impressed with the readability of the book. It definitely raises one's awareness of the need for a thought-out plan that ensures strong financial and ethical credibility."--John S. Maxson, President and CEO Greater North Michigan Avenue Association, Chicago, Illinois
 
A concise and readable account of the audit committee's roles and responsibilities
 
The Sarbanes-Oxley Act has changed the way all corporations now operate, regardless of size. In Audit Committee Essentials, goverance expert Curtis Verschoor explains with great detail and razor-sharp precision why internal control is so critical, emphasizing financial literacy, a requirement under Sarbanes-Oxley, as well as oversight of the financial reporting process and related controls, ethics and the internal and independent audits.
 
Written for seasoned professionals as well as newly assigned board members, Audit Committee Essentials is a vital tool in order to stay abreast of the rapidly changing governance requirements and responsibilities of audit committees.

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Audit Committee Essentials

John Wiley & Sons

Chapter One

Audit committees have had an important role in the governance of corporations since their inception in the early 1940s, and their visibility and contributions have greatly increased in the past few years. Audit committees have been described as organizations' guardians of financial integrity. From a regulatory perspective, the governmental agency empowered to regulate the issuance and trading of securities of public corporations, the Securities and Exchange Commission (SEC), has been involved with the establishment and oversight of audit committees in public companies since their beginning years.

Interestingly, however, the stock exchanges, as self-regulatory agencies, have been directly involved in putting into place many of the detailed requirements that the SEC mandated that audit committees of public companies follow. A body of best practices beyond legal and regulatory requirements has also grown up as a result of the work of thought leaders from the legal, investment, and auditing professions.

The public accounting profession through the American Institute of Certified Public Accountants (AICPA) has also long actively supported the need for an important role for audit committees. Because of the increased emphasis placed on the governance of corporations in the postmillennium years, particularly those that are publicly held, audit committees in many not-for-profit organizations have become more prevalent and have received greater attention and visibility. Their influence in organizations has matched this trend.

EARLY EVENTS

The New York Stock Exchange (NYSE) suggested, and the SEC endorsed, the concept of audit committees composed of nonexecutive directors as early as 1940. At that time, the responsibilities envisioned for audit committees were quite narrow, basically being limited to the nomination of the external auditor and arranging some of the parameters of its engagement. The AICPA was also active in the discussion of the need for audit committees and in 1967 issued a policy statement recommending that public corporations establish audit committees composed of outside directors.

In 1974, the SEC required proxy statement disclosure of the existence and composition of audit committees in all public corporations where they were in place. The NYSE issued a white paper at approximately the same time that strongly recommended the formation of an audit committee by each company listed on that exchange.

Several important developments took place in the late 1970s. The AICPA Special Committee on Audit Committees renewed its earlier support for establishment of an audit committee composed entirely of independent directors. In early 1977, the NYSE enacted a listing requirement that all companies listed on that exchange appoint an audit committee of nonemployee or independent directors as a condition of continued listing on the exchange. The SEC was instrumental in bringing this initiative to fruition.

The NYSE clarified in 1978 its independence requirements for audit committee members. Audit committees had to consist solely of directors "independent of management and free from any relationship that would interfere with the exercise of independent judgment as a committee member." At about the same time, the American Stock Exchange (ASE) also made a nonbinding recommendation that all of its listed companies should form independent audit committees. As noted later in this chapter, the National Association of Securities Dealers Automated Quotation System (Nasdaq) stock market established an audit committee requirement in 1989.

It should be borne in mind that in the 1970s, the influence of nonexecutive directors was substantially less than it has become in recent years. The idea that the major function of a board of directors is to represent the interests of shareowners was not prevalent. Thus, audit committee members were likely to be the only independent members of the board. In many cases, even total independence of the audit committee from management was more of a goal than an actuality.

An early endorsement by the legal profession of the concept of audit committees in public corporations appeared in the 1978 edition of the Corporate Director's Guidebook published by the American Bar Association (ABA). Two years later, the ABA Committee on Corporate Laws published specific recommendations for the membership, responsibilities, and potential liabilities of audit committees and their director-members. Later chapters discuss the contents of subsequent versions of the Corporate Director's Guidebook published by the ABA.

SEC REGULATORY, LEGAL, AND PRIVATE SECTOR INITIATIVES

The SEC continued its support for independent audit committees throughout the 1970s and sponsored public hearings related to corporate accountability and the adequacy of internal controls in U.S. corporations. The SEC stressed the "vital importance of an independent audit committee to the proper functioning of the corporation."

According to the securities laws, the current definition of an audit committee is: a) A committee (or equivalent body) established by and amongst the board of directors of an issuer for the purpose of overseeing the accounting and financial reporting processes of the issuer and audits of the financial statements of the issuer: and

b) If no such committee exists with respect to an issuer, the entire board of directors of the issuer.

Several attempts in the late 1970s to require greater disclosure of internal control adequacy and audit committee performance failed to receive support from the business community and were withdrawn. The last and most sweeping attempt would have required management to assess and report publicly on the effectiveness of internal control systems and also management's responses to internal control recommendations made by either internal or external auditors.

The formation in 1985 of the National Commission on Fraudulent Financial Reporting, also known as the Treadway Commission, after its chairman, resulted in renewed interest in audit committees on the part of financial statement users, preparers, auditors, legislators, regulators, and the general public. The Treadway report showed how audit committees could prevent or detect fraudulent financial reporting and contained 11 specific recommendations as to how this could be accomplished, including the recommendation concerning a management assessment of internal controls.

Appendix I to the Treadway report sets forth good practice guidelines for audit committees. These recommendations include the issues that audit committees should (1) be informed and vigilant, (2) have their duties and responsibilities set forth in a written charter, and (3) be given the resources and authority adequate to discharge their responsibilities. Additional guidance elsewhere in the Treadway report involves these recommendations that the audit committee should:

Not consist of fewer than three members

Include private meetings with the internal auditor and the external auditor

Report to full board

Require expanded knowledge of company operations

Include corporate and/or outside counsel in meetings

Possess knowledge of audit plans-of both external and internal auditor

Require knowledge of electronic data processing and review of...