Acknowledgements iii
Preface v
Part I: Audit Committee Administration
Chapter 1 — Audit Committee Member Roles and Responsibilities 3
Audit Committee Process and Procedures 4
Oversight of the Financial Reporting Process 4
Oversight of Financial Reporting 5
Oversight of the Independent Auditor 5
Oversight of the Internal Audit Function 5
Oversight of Risk Management 6
Oversight of Ethics and Compliance 6
Limitation of Audit Committee’s Role 6
Chapter 2 — Audit Committee Charter Matrix 7
Chapter 3 — Audit Committee Financial Expert Decision Tree 23
Chapter 4 — Sample Request for Proposal Letter for CPA Services and Qualifications (Public Company) 25
Background of ABC Company 25
Services to Be Performed 26
Key Personnel 26
Relationship With Prior CPA Service Provider 26
Other Information 27
Your Response to This Request for Proposal 27
Evaluation of Proposals 29
Chapter 5 — AICPA Peer Reviews and PCAOB Inspections of CPA Firms: An Overview 31
Peer Review of a CPA Firm 31
Peer Review Reports 32
Common Misconceptions of Peer Review 33
Questions for the Auditor Regarding Peer Review 33
Public Company Accounting Oversight Board Inspection 34
Questions for the Audit Committee Regarding the PCAOB Inspection 35
Chapter 6 — Guidelines for Hiring the Chief Audit Executive (CAE) 37
Role of the Audit Committee in Hiring and Evaluating the CAE 37
CAE Qualifications 37
Chapter 7 — Engaging Independent Counsel and Other Advisers 43
Part II: Key Responsibilities
Chapter 8 — Internal Control: Guidelines and Tool for the Audit Committee 47
Internal Control Primer 47
Internal Control Over Financial Reporting 52
ICFR Results 55
Conclusion 56
Internal Control—Checklist of COSO Essentials for the Board 57
Chapter 9 — Fraud and the Responsibilities of the Audit Committee: An Overview 63
Definition and Categories of Fraud 63
Roles of the Audit Committee in the Prevention, Deterrence, Investigation, and Discovery or Detection of Fraud 64
Expertise of Forensic Accounting Consultants 65
When Fraud Is Discovered 65
Conclusion 66
Chapter 10 — Whistleblower Policy: Complaint Reporting Procedures and Tracking Report 67
Reasons for Tool 67
Whistleblower Common Practices Checklist 68
Sample Procedures For Handling Complaints (Whistleblower Policy) 71
Chapter 11 — Issues Report from Management 75
Defining Significant Issues, Critical Accounting Estimates, Significant Unusual Transactions, and Judgments 75
Sample Issues Report From Management 77
Issues Report From Management 79
Chapter 12 — Guidelines and Questions for Conducting an Audit Committee Executive Session 81
What Is an Executive Session? 81
Additional Questions to Consider: Tool for Audit Committee Members 83
Chapter 13 — Independent Auditor Communications with Audit Committee 97
Background 97
Objectives of Communications 97
Illegal Acts 103
Internal Control Matters 103
Fraud 103
Chapter 14 — Responding to the Identification of a Material Weakness—A Checklist for the Audit Committee 105
Background 105
Steps the Audit Committee Should Take If Faced With an Adverse Report on Internal Control 107
Part III: Performance Evaluation
Chapter 15 — Evaluating the Internal Audit Function: Questions to Consider 113
Chapter 16 — Evaluating the Independent Auditor: Questions to Consider 117
Questions for Audit Committee Members 117
Questions for Management and/or Internal Audit 120
Chapter 17 — Conducting an Audit Committee Self-Evaluation: Questions to Consider 121
Part IV: Other Tools
Chapter 18 — Enterprise Risk Management: A Primer on the COSO Framework 127
Enterprise Risk Management Primer—Basics of ERM and Its Relationship to Internal Control 127
Relationship Between COSO Enterprise Risk Management—Integrated Framework and Internal Control—Integrated Framework 129
Other Key Terms in Enterprise Risk Management 131
Portfolio View of Residual Risk Example 132
Roles and Responsibilities 132
Limitations of Enterprise Risk Management 133
Conclusion 133
Enterprise Risk Management: A Tool for Strategic Oversight 134
Chapter 19 — Enterprise Risk Management: A Tool for Strategic Oversight 135
Chapter 20 — Common Security and Exchange Commission (SEC) Filings: An Overview 139
Overview of the Most Common Corporate Filings 139
1933 Act Registration Statements 142
Investment Company Registration Statements 145
1934 Act Registration Statements 146
Other Exchange Act Forms 147
Trust Indenture Act of 1939—Forms 150
Chapter 21 — SEC Final Rule on Audit Committee Financial Experts 151
Chapter 22 — IFRS Implementation 161
Implementation 161
Stage 1: Assessment 161
Stage 2: Conversion 162
Stage 3: Integration 163
Conclusion 164
Chapter 23 — Resources for Audit Committees 165
