Abstract
The role of the audit committee has been enhanced in most developed countries. In the US, sections 205, 301, 304, and 407 of the SOX Act of 2002 provide additional rules concerning the prerogatives of audit committees within publicly-traded companies. The audit committee is a fraud detector and ethics policy enforcer for all registered companies.1 Audit committees are required by NYSE (New York Stock exchange), the AMEX (American Stock Exchange), and the NASDAQ. They all require that: (i) audit committee be composed of at least three independent directors2 that is, those outside directors who have no other relationship that might impair their independence, and (ii) be financially literate, and that at least one member (usually the chairman) be a financial expert.
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Notes
Robert M. Lo Bue, ‘Agency Assurance: The Role of the Audit Committee in Corporate Governance’, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG), University of St. Gallen, 2006, p. 65.
Audit committee members should neither be officers nor employees of the company. Under SOX, they should not neither receive any consulting, advisory, or other compensatory fee from the company.
Idem, p. 74.
PCAOB Standard No. 16.
Securities Act of 1933 and the Securities Exchange Act of 1934.
Escott v. BarChris Construction Corp. 283 F. Supp. 643 (S.D.N.Y. 1968).
Admin. Proc. No. 3–11707, 2004 SEC LEXIS 2331.
SEC v. Krantz, Chasin, and Nadelman, No. 0:11-cv-60432-WPD (S.D. Fla. Filed February 28, 2011); Litigation Release No. 21867 (February 28, 2011).
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© 2014 Felix I. Lessambo
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Lessambo, F.I. (2014). The Audit Committee and Management Fraud. In: The International Corporate Governance System. Global Financial Markets series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137360014_24
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DOI: https://doi.org/10.1057/9781137360014_24
Publisher Name: Palgrave Macmillan, London
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