Audit Committees [CMA Adapted]
An early event leading to the establishment of audit committees as a regular subcommittee of boards of directors occurred in 1940 as part of the consent decree relative to the McKesson-Robbins scandal. (A consent decree is the formal statement issued in an enforcement action when a person agrees to terms of a disciplinary nature without admitting to the allegations in the complaint.)
An audit committee composed of outside directors was required as part of the consent decree.
Title III of SOX specifies requirements for the membership of the audit committee and its authority. All publicly traded firms must follow SOX.
Required
a. Explain the role of the audit committee as SOX specifies, with regard to the annual audit conducted by the company’s external auditors.
b. Discuss the relationship that should exist between the audit committee and a company’s internal audit staff.
c. Explain why the members of the audit committee should be outside (independent of management) board members.
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