The primary responsibility of a corporation’s audit committee is to review external and internal audit activities. It meets with the independent auditors before the audit to discuss the scope of the auditor’s engagement and after the audit to review earnings releases before publication, discuss the impact of regulatory bodies’ pronouncements on the company’s financial statement, review the auditor’s management letter and discuss staffing of the corporation’s internal accounting and financial departments. In addition, the committee meets with the corporation’s financial officers to review alternative accounting policies, discuss the simplification of auditor’s recommendations, discuss internal controls and nominate an independent auditor.
Although this heavy emphasis on audit activities argues for the presence of accountants on audit committees, the authors’ survey reveals that in practice men with accounting backgrounds are rarely included. Are audit committees, as currently constituted, any more competent to discharge their responsibilities than a random selection of outside members of the board of directors?