Audit Committee Essentials

by Verschoor, Curtis C.

• ISBN13: 9780471699590
• ISBN10: 0471699594
• Edition: 1st
• Format: Hardcover
• Copyright: 2008-06-10
• Publisher: Wiley

Summary

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.

Author Biography

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.

Table of Contents

About the Author	p. xiii
About the Institute of Internal Auditors	p. xiv
Preface	p. xv
Evolution of Audit Committees	p. 1
Early Events	p. 1
SEC Regulatory, Legal, and Private Sector Initiatives	p. 2
Regulation Arising from Banking Scandals	p. 5
Stock Exchange Initiatives	p. 5
Sarbanes-Oxley Act of 2002	p. 6
Directors' Liability	p. 8
Private Company and Not-for-Profit Governance Initiatives	p. 9
Future Outlook	p. 10
Key Points in Chapter 1	p. 11
Full Board Responsibilities and Effective Board Processes	p. 13
Introduction	p. 13
Responsibilities of the Board of Directors	p. 13
General Responsibilities of Directors	p. 14
Importance of Being Fully Informed	p. 16
Specific Responsibilities of Directors	p. 17
Best Practices Boards Should Embrace	p. 18
Overview of Current Legally Required Board Member Duties	p. 19
Duties of Care and Loyalty	p. 20
Additional Duties	p. 24
Directors' Rights	p. 24
Areas of Special Concern for the Board as a Whole	p. 25
Recommended Elements of Board Practices and Processes	p. 26
Assessing the Effectiveness of the Board as a Whole	p. 30
Liability and Indemnification	p. 31
Key Points in Chapter 2	p. 31
Personal Characteristics of Effective Boards and Members	p. 33
Introduction	p. 33
Role and Authority of Independent Directors	p. 34
Characteristics of an Effective Board Member	p. 35
Core Competencies of an Effective Board	p. 37
Summary of the Director's Role	p. 38
Key Points in Chapter 3	p. 38
Duties of Audit Committees Prescribed by Law, Regulation, or Rule	p. 40
Introduction	p. 40
Historical Development of Mandated Audit Committee Duties	p. 42
Source of Current Legally Required Duties of Audit Committees	p. 43
Report and Recommendations of the 1999 Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees	p. 44
Summary of Recommendations	p. 45
Overview of Currently Prescribed Duties and Responsibilities	p. 47
Formal Written Charter	p. 47
Principal Relationship with External Audit Firm	p. 47
Receipt of Confidential and Other Information	p. 48
Oversight of Financial and Other Disclosures	p. 49
Oversight of Internal Controls	p. 50
Oversight of Required Annual Assessment of Internal Control over Financial Reporting	p. 51
Oversight of Risk Management and Compliance Processes	p. 52
Additional Duties for Public Company Audit Committees	p. 53
Duty to Maintain Competence	p. 53
Legislative/Regulatory Sources of Selected Audit Committee Responsibilities	p. 53
Audit Committee Responsibilities Included in Sarbanes-Oxley Sections 301	p. 54
Selected Responsibilities Set Forth by the New York Stock Exchange	p. 55
Selected Responsibilities Set Forth by Nasdaq	p. 57
Key Points in Chapter 4	p. 59
FEI Corporate Governance Checklist	p. 60
Overview of Additional Duties of Audit Committees Considered to Be Best Practices	p. 62
Recommendations of the Business Roundtable	p. 62
Recommendations of the Conference Board	p. 64
Guiding Principles of the Blue Ribbon Committee	p. 65
Eight Habits of Highly Effective Audit Committees	p. 65
Best Practices Related to Auditing and Internal Control	p. 66
Best Practices Related to Public Disclosure of Financial Information	p. 68
Audit Committee Oversight of Ethics and Compliance Programs	p. 69
Sarbanes-Oxley Requires Disclosure of Code of Ethics	p. 70
Stock Exchange Implementation of Code Requirement	p. 71
Requirements of the U.S. Sentencing Commission	p. 71
Guidance from the Open Compliance and Ethics Group	p. 71
Additional Audit Committee Best Practices	p. 72
Key Points in Chapter 5	p. 73
Necessary Characteristics of Audit Committees and Their Members	p. 75
Introduction	p. 75
Important Personal Attributes of Members	p. 76
Importance of Total Independence	p. 76
Portion of Section 301 of Sarbanes-Oxley Concerning Audit Committee Independence	p. 77
New York Stock Exchange Rule on Independence	p. 77
Nasdaq Rule on Independence	p. 78
Financial Knowledge Necessary	p. 79
Criteria for Assessing Audit Committee Effectiveness	p. 80
Key Points in Chapter 6	p. 81
Audit Committee Performance Evaluation Questionnaire	p. 83
The Audit Committee and Its Charter	p. 89
Purpose and Contents of an Audit Committee Charter	p. 89
Key Points in Chapter 7	p. 90
Sample or Model Audit Committee Charter (Statutory and Regulatory Perspective)	p. 92
Sample Audit Committee Charter from the Institute of Internal Auditors Research Foundation	p. 98
Excerpts from Selected Actual Audit Committee Charters	p. 102
Audit Committee Oversight of Financial Statements and Financial Disclosures	p. 108
Audit Committee Duties to Oversee Financial Statement Preparation	p. 108
Audit Committee Duties Regarding Financial Disclosures	p. 110
Audit Committee Disclosure Duties Considered Best Practices	p. 111
External Auditor Requirements for Communication with the Audit Committee	p. 112
Summary of Audit Committee Responsibilities for Oversight of Financial Statements and Financial Reporting	p. 114
Key Points in Chapter 8	p. 115
The Audit Committee and Internal Auditing	p. 117
Introduction	p. 117
Internal Auditing Responsibilities	p. 118
Guidance for Audit Committees in Internal Auditing Professional Standards	p. 119
Guidance Provided by Credit Agencies	p. 121
Assessment of Internal Auditing Quality	p. 122
Importance of Resource Allocation Based on Approved Risk-Based Audit Plan	p. 123
Key Points in Chapter 9	p. 125
The Audit Committee and Risk Management	p. 126
Introduction	p. 126
Legally Required Duties Involving Risk Management	p. 126
Best Practices in Risk Oversight	p. 127
Process of Risk Management	p. 128
Enterprise Risk Management	p. 129
COSO ERM Integrated Framework	p. 130
Other Risk Management Frameworks	p. 134
Role of Internal Auditing in Risk Management	p. 135
Key Points in Chapter 10	p. 136
The Audit Committee and Internal Control	p. 137
Audit Committee Duties Concerning Internal Control	p. 137
Concepts of Control	p. 137
Sarbanes-Oxley Requirements for Management Assessment of Internal and Disclosure Controls	p. 139
Sarbanes-Oxley Requirements for Assessment and Reporting on Internal Controls and External Audit Attestation	p. 140
SEC Interpretive Guidance to Management on Its Evaluation of Internal Control	p. 141
PCAOB Audit Standard No. 5	p. 143
AICPA Internal Control Guidance for Audit Committees	p. 145
Key Points in Chapter 11	p. 146
Internal Control-A Tool for the Audit Committee	p. 147
The Audit Committee and Ethics-Related Initiatives	p. 153
Sarbanes-Oxley and NYSE Code of Conduct and Ethics Guidance	p. 153
U.S. Sentencing Guidelines Requirements	p. 156
Preventing and Detecting Fraud	p. 156
Examples of Codes of Conduct	p. 157
OCEG Ethics and Compliance Evaluation Tool	p. 160
Ethisphere Council Evaluation Criteria	p. 161
Key Points in Chapter 12	p. 162
Seven Minimum Components of an Effective Compliance and Ethics Program under U.S. Sentencing Guidelines	p. 163
UPS Code of Business Conduct	p. 165
Google, Inc. Code of Conduct	p. 185
The Audit Committee and Information Technology	p. 200
Introduction	p. 200
IT Governance Concepts	p. 201
Objectives of IT Governance	p. 202
Audit Committee Involvement with IT Matters	p. 204
20 Questions to Ask about IT	p. 205
ITCi Controls for IT Governance	p. 208
Key Points in Chapter 13	p. 208
IT Governance Controls Checklist	p. 209
Audit Committee Issues in Not-for-Profit Entities	p. 213
Introduction	p. 213
State Statutes Embrace Sarbanes-Oxley Requirements	p. 214
Federal Volunteer Protection Act of 1997 and Similar State Statutes	p. 214
IRS Reporting by Not-for-Profit Entities	p. 216
Entities Receiving Federal Funding	p. 216
Not-for-Profit Board Evaluation	p. 217
Key Points in Chapter 14	p. 218
Board Self-Evaluation Scorecard	p. 219
Checklist for Directiors of Nonprofits	p. 221
Audit Committee Resources	p. 223
American Institute of Certified Public Accountants	p. 223
Association of Audit Committee Members	p. 223
BoardSource	p. 223
Conference Board	p. 224
Corporate Board Member	p. 224
COSO	p. 224
Deloitte Center for Corporate Governance	p. 224
Ernst & Young	p. 224
Financial Executives International	p. 225
Grant Thornton	p. 225
Huron Consulting Group	p. 225
Institute of Internal Auditors, Inc.	p. 225
ISACA	p. 225
KPMG Audit Committee Institute	p. 226
National Association of Corporate Directors	p. 226
OCEG	p. 226
PricewaterhouseCoopers	p. 226
Protiviti	p. 227
Society of Corporate Secretaries and Governance Professionals	p. 227
Universities	p. 227
Glossary	p. 228
Index	p. 234
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