Reading and Interpreting IBM’s Report of Management IBM’s 2008 annual report includes the following selected paragraphs from its Report of Management found on page 58:

IBM maintains an effective internal control structure. It consists, in part, of organizational arrangements with clearly defi ned lines of responsibility and delegation of authority, and comprehensive systems and control procedures.

An important element of the control environment is an ongoing internal audit program. Our system also contains self-monitoring mechanisms, and actions are taken to correct defi ciencies as they are identifi ed. . . .

PricewaterhouseCoopers LLP, an independent registered public accounting fi rm, is retained to audit IBM’s Consolidated Financial Statements and the effectiveness of the internal control over fi nancial reporting. Its accompanying report is based on audits conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). . . .

The Audit Committee of the Board of Directors is composed solely of independent, non-management directors, and is responsible for recommending to the Board the independent registered public accounting fi rm to be retained for the coming year, subject to stockholder ratifi cation. The Audit Committee meets periodically and privately with the independent registered public accounting fi rm, with the company’s internal auditors, as well as with IBM management, to review accounting, auditing, internal control structure and fi nancial reporting matters.

Required 1. Describe the main components of IBM’s internal control structure.

2. Who is IBM’s external auditor? In addition to auditing IBM’s fi nancial statements, what else does this fi rm audit? What body’s standards does the fi rm follow in conducting its audit?

3. What is the composition of IBM’s Audit Committee? Describe its role.

Making Financial Decisions AppendixLO1