| Since the publication of the third edition of The Audit Committee Handbook in 1999, a number of major accounting scandals (e.g., Enron,WorldCom, and others) as well as the demise of the international accounting firm of Anderson LLP have shaken the global capital markets. As a result, the U.S. Congress enacted the Sarbanes- Oxley Act of 2002 and the Securities and Exchange Commission adopted final rules amending the securities laws. Likewise, the Self-Regulatory Organizations set forth a number of amendments to their listing standards with respect to corporate governance and accountability. The major thrust of these reforms is to create a new regulatory and legal environment and corporate accountability framework, which, in turn, provides an effective financial reporting system with relevant and reliable financial information. The primary goal is to restore investor confidence through an efficient securities market system.
Historically, the role and responsibilities of the audit committee as a key institution in corporate governance has been accepted as an important oversight mechanism to help the board of directors discharge its fiduciary financial responsibility and stewardship accountability to the shareholders. However, the aforementioned events have caused a reexamination of the audit committee’s role in the context of corporate governance. In fact, these events have caused a number of best practices for the audit committee to become federal statute. Given these mandates, members of audit committees must adhere to higher standards in corporate accountability to ensure the quality of financial information and investor protection against accounting scandals. Audit committees in a global securities marketplace continue to respond to the investing public’s demand for oversight protection. (See Appendix D on this book’s website.) As noted, such committees not only help engender a high degree of integrity in both the internal and external audit processes and financial reporting process, but they also help provide for an efficient and transparent securities market. For example, many countries with developed equity markets or emerging markets have adopted audit committees through public and/or private sector initiatives to ensure price protection of their securities to investors. Moreover, the recent initiatives to develop and adopt harmonized international accounting and auditing standards accentuate the need to achieve uniformity in oversight protection to investors. It should be noted that companies will use the endorsement of these standards by the International Organization of Securities Commissions in their stock offering documents to raise capital in a global securities marketplace. |