The Sarbanes–Oxley Act mandates that the audit committee of the board of directors of public companies be directly responsible for the appointment, compensation, and oversight of the external auditors. In addition, the audit committee must preapprove all nonaudit services that might be performed by the audit firm.
a. Discuss the rationale for this mandate, as opposed to the alternative of letting the shareholders, CFO, or CEO have these responsibilities.
b. What factors should the audit committee consider in evaluating the independence of the external auditor?
c. Locate the proxy statement for a publicly traded company of your choice. To do so, go to the SEC’s Web site, www.sec.gov. Search for your company’s filings using the EDGAR data system on the Web site. Once you have located your company’s filings, you may narrow your search by typing in the phrase “Def 14A,” which is the proxy filing. Once you have found the proxy, read and summarize the disclosures provided concerning the audit committee members, their compensation, their responsibilities, and their activities.