Firms Being Denied Access to Audit Committees

Source: Accounting Today

Section 301 of the Sarbanes-Oxley Act provides for the establishment of audit committees to be responsible for the selection of outside auditors, who are to report to the committee. But, according to Gale Crosely (Gale Crosley, CPA, is founder and principal of Crosley+Co. www.crosleycompany.com), public companies are allowing bidders for the audit engagement to have only a brief audience with the audit committee for its approval. There aren’t sufficient opportunities to uncover the needs of the company as perceived by the audit committee members.

Firms are denied interviews with the audit committees until and unless they become one of the group from which the selection will be made.

In a case example cited by Crosley, a bidder, not allowed an in-depth interview with the audit committee, was unable to answer certain questions during the one-hour committee interview with “finalists,” because those subjects did not arise during the interview with management. The problem is not limited to audits. Audit committees are also involved in selecting firms for non-audit services where the auditor is prohibited from providing them.

Crosley recommends that in addition to reviewing documents and interviewing management, firms interview at least one audit committee member. Firms should, however, be aware that taking such an inflexible position might backfire unless the policy is asserted tactfully, along with a gentle admonishment about the high risk both the company and the auditor are taking.

From Accounting Today, August 22, 2005. For the complete article, click on the following link:

http://www.webcpa.com/article.cfm?articleid=14448&;pg=acctoday.