CPAs as Audit Committee Members: Be Part of the New Vanguard in Corporate Governance
EXECUTIVE SUMMARY * WITH THE ADVERT OF SARBANES-OXLEY, CPAs ARE LIKELY to receive more invitations to serve on the audit committees of corporate boards of directors. Before accepting these offers, accountants should make sure they are ready for the time commitment and other responsibilities that come along with them. * MANY CPAs WILL BE ASKED TO SERVE AS THE AUDIT committee's financial expert. This individual should have an understanding of GAAP and financial statements, experience preparing, auditing, analyzing or evaluating statements that show a level of complexity similar to the company's and an understanding of internal controls, financial reporting procedures and audit committee functions. * INDUSTRY EXPERTISE IS AN IMPORTANT QUALIFICATION for audit committee service. For certain specialized industries CPAs may need to devote extra time to gain a working understanding of the business and its competitors. * SERVING ON AN AUDIT COMMITTEE INVOLVES a significant time commitment, including preparing for meetings as well as attending them. Preparation time depends on the responsibilities in the audit committee's charter and the resources available to help it do its job. * BEFORE MAKING A FINAL DECISION TO JOIN an audit committee, CPAs should be sure to read the sections of Sarbanes-Oxley pertaining to audit committees as well as the company's audit committee charter, speak to current and former committee members and evaluate their own independence from the company and its management. Corporate America is only beginning to feel the impact of the Sarbanes-Oxley Act of 2002. Not surprisingly, one consequence of this legislation is that CPAs, particularly those who are retired from public practice or those in industry, are often sought after to serve on boards of directors of both public and private companies. It is particularly critical for the long-term economic confidence of the nation that American businesses attract and retain talented individuals to serve on their boards' audit committees. Now that the SEC has issued its definition of "audit committee financial expert," even more companies are seeking CPAs as board members. Serving on an audit committee can be professionally rewarding. For many accountants, it provides an opportunity to contribute a lifetime of experience in a challenging new business environment. Many CPAs find the intellectual interaction with other corporate leaders to be a pleasant addition to their careers. This experience, however, is not universal. For some, the benefits do not justify the personal commitment, media spotlight and legal liability that potentially accompany audit committee service. A few have resigned their positions while others simply do not accept offers to serve. This article outlines some key factors and practical issues CPAs contemplating service on an audit committee should consider before joining. In addition, "Six Points to Ponder When Invited to Join an Audit Committee" on page 36 offers guidance from CPAs who serve on corporate boards and their insights into the decision of whether to join a board and its audit committee. AUDIT COMMITTEE FINANCIAL EXPERT SEC rules implementing section 407 of Sarbanes-Oxley require a company to disclose whether it has at least one "financial expert" serving on its audit committee and, if so, the expert's name and whether he or she is independent of management. A company that does not have such an expert on its audit committee must disclose this fact and explain why. It makes sense that corporate America would look to CPAs to satisfy this new requirement because the SEC defines a financial expert as someone with * An understanding of GAAP and financial statements. * The ability to assess the general application of these principles in connection with accounting for estimates, accruals and reserves. * Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable with the breadth and complexity of issues the company's financial statements might reasonably raise or experience actively supervising one or more persons engaged in such activities. …