Audit committees are an important corporate governance party and have taken on additional responsibilities following the passage of the Sarbanes-Oxley Act.
a. Describe the changes in audit committee membership, and list duties that were mandated by the Sarbanes-Oxley Act. Also, describe any other increased responsibilities of audit committees following the passage of the Sarbanes-Oxley Act.
b. The audit committee now has ownership of the relationship with the external auditor. What are the implications of this change for the audit committee and for the external auditor?
c. Assume that management and the auditor disagree on the appropriate accounting for a complex transaction. The external auditor has conveyed the disagreement to the audit committee and provided an assessment that the disagreement is on the economics of the transaction and has nothing to do with earnings management.
What is the responsibility of the audit committee? What skills of audit committee members do you think might be helpful in this type of situation?