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Audit
Committees
Although
management has the primary responsibility for preparing the company's
financial reporting, the board of directors is responsible for overseeing
that process. Members of the audit committees are responsible for helping
the rest of the Board of Directors to assure the integrity of the company's
financial reporting. Shareholders also rely on the audit committee to
provide independent, effective oversight of the company's financial reporting
process in order to protect the company's assets and its reputation. The
role of the audit committee is not only financial reporting, but also
risk assessment.
The audit
committee neither prepares financial statements nor is involved in the
day-to-day decisions required to prepare financial statements. An audit
committee can expect and demand help from senior management in understanding
the key elements of the company's internal financial controls. Specific
functions of the audit committee typically include:
- To recommend
changes to the audit committee's charter as conditions change
- To determine
the skills required for an audit committee member
- To review
and discuss candidly the financial performance of the company with senior
management, and with the company's independent auditors
- To act
as liaison between the Board of Directors and the independent auditing
firm
- To ensure
that the company presents clear, reliable, accurate, consistent and
timely financial reports to regulatory agencies, stockholders and other
interested parties
- To reduce
the risk of financial statement fraud
- To evaluate
the internal control systems implemented by management to control accounting
activities and the financial reporting process
- To evaluate
the effectiveness of fraud controls, including the role of the company's
independent auditors and the scope of their audit function, and recommend
changes or improvements when necessary
- To ensure
that the corporate culture promotes ethical behavior and punishes wrongdoing
- To ensure
segregation of duties and reporting responsibilities within the company
when conflicts of interest might occur otherwise.
- To convince
company management of the audit committee's zero tolerance policy relating
to aggressive or creative or fraudulent accounting techniques
- To eliminate
the need to ever have to restate the company's financial statements
- To review
new auditing standards or GAAP rules and ensure the company is in full
compliance with them
- To identify
and address financial risks in a timely manner
- To eliminate
overly complex organizational structures that do not seem to exist for
a legitimate business purpose
Source:
Michael Dennis, author of "Credit and Collection Handbook" available
at the NACM Bookstore. |
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