Other External Resources
GAO Forum on Governance and Accountability
GAO Forum on Governance and Accountability: Challenges to Restore
Public Confidence in U.S. Governance and Accountability Systems,
January 2003 - On December 9, 2002, the United States General Accounting
Office (GAO) convened a governance and accountability forum to discuss
challenges facing regulators, the accounting profession, and boards
of directors and management of public companies in effectively implementing
the Sarbanes-Oxley Act of 2002 and related regulatory actions to
improve public confidence in U.S. corporate governance and accountability
systems. The forum focused on the four interrelated areas of corporate
governance, the financial reporting model, the accounting profession,
and regulation and enforcement that the accountability breakdowns
have surfaced as critical areas to be strengthened. Addressing these
challenges detailed in the report will involve the public, private,
and not-for-profit sectors.
Impact of the Current Economic and Business Environment
on Financial Reporting
The Big 5 auditing firms and the AICPA released a report, Impact
of the Current Economic and Business Environment on Financial Reporting (also known as the "Risk Factors" report or the Risk Alert), on
January 9, 2002 that is intended to provide timely information about
the current financial reporting environment; an assessment of risk
factors that may be important for financial statement preparers,
auditors, and audit committees to consider during the current reporting
cycle; and recommendations for actions that can be taken to enhance
financial reporting during the 2001 reporting year.
Impact of the Current Economic and Business Environment on
Financial Reporting addresses the current economic downturn,
the events of September 11, and recent business failures, and includes
actions that may be considered to address such financial reporting
risks.
Issues addressed were varied but include related parties, unusual
transactions, off-balance sheet financing, materiality, and adequacy
of disclosure (just to name a few).
The report concludes with a "call to action" for management, auditors
and audit committees, including specific actions for each to consider
in striving for the common goal of high quality, transparent financial
reporting.
This report also included a few action items that could be taken
by management, auditors and audit committees to make sure that a
company's financial reporting is of the highest quality.
Blue Ribbon Committee
The Blue Ribbon Committee on Improving the Effectiveness of Corporate
Audit Committees issued its report in February of 1999. The Committee's
recommendations formed the basis for regulatory changes that were
adopted in the following months by the Securities and Exchange Commission
(SEC), New York Stock Exchange (NYSE), American Stock Exchange (AMEX),
and the National Association of Securities Dealers (NASD). The American
Institute of Certified Public Accountants (AICPA) also amended their
Statement on auditing Standards (SAS) 61 and 71 in response to the
committee recommendations requiring external auditors to perform
quarterly reviews and modifying required communications between
audit committees and their auditors.
Shaping the Audit Committee Agenda
Shaping the Audit Committee Agenda was originally published
by KPMG soon after the release of the report of the 1999 Blue Ribbon
Committee on Improving the Effectiveness of Corporate Audit Committees.
This book from KPMG continues to be a valuable resource to audit
committee's considering their role in the overall corporate governance
structure.
Bound copies of Shaping the Audit Committee Agenda can be obtained
from the Audit Committee Institute at 877-KPMG-ACI or by sending
us an e-mail at auditcommittee@kpmg.com.
Analysis of the 1999 Audit Committee Regulations
KPMG's Analysis of the New Audit Committee Regulations includes
a summary of the regulations, consideration of their impact, reactions
from corporate board members, excerpts from the final regulations,
comparison of the final rules to those initially proposed by the
Blue Ribbon Committee and tools developed by the Audit Committee
Institute to assist with implementation of the new rules.
O'Malley Panel Recommendations
At the request of former SEC Chairman Arthur Levitt, the Public
Oversight Board (POB) appointed the Panel on Audit Effectiveness
in October 1998 to assess whether independent audits of the financial
statements of public companies adequately serve and protect the
interest of investors. The eight-member panel and its staff, headed
by Shaun F. O'Malley, former Chair of Price Waterhouse LLP, conducted
a comprehensive review and evaluation of the way independent audits
are performed, and assessed the effects of recent trends in auditing
on the public interest. The Report and Recommendations of The
Panel on Audit Effectiveness (now commonly referred to as the
O'Malley Panel or the Panel) was released by the POB in late August
2000.
The Panel emphasized in its conclusion that "while many specific
recommendations are made for improvements in the conduct of audits
and governance of the profession, our report demonstrates that both
the profession and the quality of its audits are fundamentally sound.
The Panel believes the recommendations in this report will result
in more effective audits that improve the reliability of financial
statements, enhance their credibility, contribute to investors'
confidence in the profession, and improve the efficiency of the
capital markets."
The over 200 specific recommendations were addressed primarily
to auditing and accounting standards setters, audit firms, and the
SEC Practice Section of the AICPA. Additional recommendations were
addressed to audit committees, the SEC, and others, including the
Independence Standards Board.
The inclusion of recommendations addressed to audit committees
in the Panel's study of audit effectiveness acknowledges the significant
impact that strong and independent audit committees have on the
effectiveness and independence of the external auditor. The O'Malley
Panel stated that it strongly supports "more proactive audit committees
and the development of stronger relationships between boards of
directors (and their audit committees) and auditors that recognize
that the auditors are ultimately accountable to the board of directors
and audit committee as representatives of the shareholders." This
is consistent with the existing requirement that audit committee
charters specify this "accountability" of the external auditor to
the board and the audit committee.
In May 2001, during a speech at the 20th Annual SEC and Financial
Reporting Institute Conference, Lynn Turner, then Chief Accountant
of the SEC, stated: "To improve the effectiveness of audits, we
need to ensure that auditing firms and the Auditing Standards Board
fully implement these recommendations on a timely basis. To that
extent, I have asked the Public Oversight Board to report publicly
on the progress made on the O'Malley Panel's recommendations."
Click
here to link to the Public Oversight Board's Panel on Audit
Effectiveness Web site.
The Business Lawyer:
How to Really Make Audit Committees More Effective
This May 1999 article from The Business Lawyer, Vol. 54, "How
to Really Make Audit Committees More Effective," authored by John
F. Olsen, includes an informative and descriptive "Ten Rules for
Really Effective Audit Committees." This 15-page article also details
some now-historical background impacting audit committees in the
introduction, including the Blue Ribbon Committee and The Treadway
Commission.
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