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Who Is Required to Form Audit Committee

81 COSO Report, supra note 26, p. 34 (“A careful review of quarterly financial information and the adoption of continuous audit strategies may increase the possibilities for earlier detection of irregularities in the annual accounts”. We require companies listed on the NYSE, AMEX or Nasdaq to disclose certain information about any non-independent audit committee members (smaller company issuers are not subject to this requirement) and whether audit committee members are independent. Companies, including small issuers, whose securities are not listed on the NYSE or AMEX or listed on Nasdaq must disclose whether their members are independent, but may choose which definition of independence to use and must disclose the definition used. We asked for comments on whether we should require all companies to comply with paragraph 302(a) of Regulation S-K. As explained in the previous sections of the press release, Section 302(a) of Regulation S-K currently requires large companies to supplement their annual financial information with the disclosure of selected quarterly financial data. We are amending Section 302(a) to extend the requirements to all corporations (but not small companies filing small business forms and foreign private issuers) whose securities are registered under Section 12(b) or 12(g) of the Exchange Act. Section 302(a) information will continue to be displayed in tabular form on Form 10-K. For the purposes of the Red Tape Reduction Act, we estimated that the disclosures we require would impose an average of one additional hour of exposure on each Schedule 14A or 14C notifier, for a total of 10,145 additional hours of exposure per year. This estimate reflects the time that the companies would spend preparing the additional information in the proxy circular.91 The total annual cost would be approximately $1 million. 54 The signature requirement is described in Policy Statement D on Form 10-K and Policy Statement C on Form 10-KSB. In 1980, the Board amended the signature requirements for Form 10-K to “increase the Director`s awareness and involvement in the preparation of Form 10-K information.” See Securities Act Release No.

6176 (January 15, 1980) [45 FR 5972]. In response, we amended this disclosure element, which was the subject of most comments. Instead, we accept one of the other proposed alternatives whereby the audit committee must disclose whether, based on the review and discussion of the audited financial statements with management and discussions with the auditor, the audit committee recommended that the board include the audited financial statements in the company`s annual report on Form 10-K or 10-KSB (as applicable) for the most important fiscal year. recent for filing with the Commission. to be recorded. As noted in the proposed communication, we do not believe that better disclosure by the Audit Committee and increased involvement by the Audit Committee should result in increased liability risk. Therefore, we believe this change, along with the safe harbor provisions, should allay concerns about increased accountability while pursuing our goal of improving the accounting process. 45 See, generally, Report of the Public Oversight Board (`the POB`), entitled `Directors, Management, and Auditors: Allies in Protecting Shareholder Interests`, in which the POB discusses, inter alia, a recommendation by the Kirk Group to require audit committees to discuss with management and auditors the quality of accounting policies and judgments used in preparing the financial statements.

POB reiterates its belief that compliance with this recommendation would not increase directors` exposure to litigation, given that the proceedings will, among other things, reduce the possibility that financial statements are truly misleading, thereby reducing the risk of directors being guilty, and the additional steps taken should be persuasive to convince courts and juries to: that the annual accounts have been drawn up with care. Based on employee experience, we do not expect the company`s employees to take much time to extract data from their previous quarterly reports in order to prepare the additional financial information for Form 10-K. Although the information occupies part of an additional page on Form 10-K, there are no printing costs attributable to the disclosure of this information, as it is generally not included in the annual report printed and distributed to investors. 32 In 1989, the Commission published a conceptual notice on the advisability of proposing amendments to its rules in order to require greater involvement of the independent auditor in the preparation of interim financial information. See Exchange Act Release No. 26949 (June 20, 1989) [54 FR 27023]. The Treadway Commission recommended that the SEC require independent auditors to review quarterly financial data before a company makes it public. Treadway Report, op.

cit. note 21, p. 53. In addition, small businesses that are not subject to NASD, AMEX or NYSE listing standards may choose which definition of independence to use, as long as it is used consistently. In addition, issuers of small entities are not required to disclose the reasons for including a non-independent member of the audit committee, as they are not required by the registration standards to have all independent members on their audit committees. Learn the basics of accounting and reading financial statements with the CFI`s free online accounting courses. These courses will give you the confidence you need to do a world-class financial analyst job. Get started now! 56 For example, Delaware General Corporation Law states that directors “are fully protected if they have a good faith reliance on the records of the Corporation and any information, opinions, reports or statements submitted to the Corporation by any officer or employee of the Corporation. or by any other person in relation to matters that the Member has reasonable grounds to believe are within the professional competence of that other person.

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