Financial Fraud Prevention and Detection: Governance and Effective Practices

CHAPTER FIVE

The Audit Committee

CLEOPATRA: Horrible villain! or I'll spurn thine eyes Like balls before me; I'll unhair thy head: Thou shalt be whipp'd with wire, and stew'd in brine, Smarting in lingering pickle.

MESSENGER: Gracious madam, I that do bring the news made not the match.

CLEOPATRA: Though it be honest, it is never good to bring bad news.

—Antony and Cleopatra, Act II, Scene v

ONE PHRASE COULD PROBABLY CAPTURE the state of many audit committee members in a post-Sarbanes-Oxley world: lost in the forest. Faced with an onslaught of new laws, regulations, risks, and ­expectations—not to mention legions of corporate-governance experts providing often inconsistent advice—many audit committee members understandably find themselves somewhat uncertain (or completely at sea) as to how far their responsibility goes or how that responsibility is to be fulfilled. Without completely understanding the extent of their responsibility, committee members find themselves getting drawn into the details of Form 10-K disclosure, earnings press releases, auditor communications, “enterprise risk management,” and innumerable intricacies of corporate governance—all the while having difficulty finding someone who can articulate with any certainty the precise contours of audit committee oversight or, for that matter, even where to find it written down.

Exacerbating the uncertainty is a mindset among some that has resulted in audit committees almost becoming a dumping ground for corporate responsibilities. ...