Introduction to the Work of the Audit Committee.

• Author: Reilly, Jr., Thomas J.
• Position: Review

Published by Camhy Karlinsky & Stein LLP, New York, 45 pages

REVIEWED BY THOMAS J. REILLY JR.

The year 1999 may or may not be the last year of the millennium. In the world of corporate governance, however, it really is the "Year of the Audit Committee." In February, the SEC, NYSE, and NASD-sponsored "Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees" issued its recommendations. These are included as an appendix to this 45-page booklet. Later this year, the National Association of Corporate Directors (NACD) Blue Ribbon Commission on Audit Committees will issue its report. Each of the major accounting firms are among entities that have published suggestions, recommendations, etc. for audit committees within the last year.

Why is this booklet a valuable addition to the existing body of literature? According to the authors, it is intended for readers who are relatively new to corporate governance and financial reporting, and especially for the director who is not a lawyer or accountant.

Given the ever-increasing responsibilities, and potential liabilities, of audit committees, one might wonder if anyone other than a lawyer or an accountant would want to serve on one. The best qualifications for audit committee members are the personal characteristics of the individual, including objectivity, inquisitiveness, and general business experience. These traits are obviously not exclusive to lawyers and accountants. Therefore, there will continue to be audit committee members from a variety of business and professional backgrounds.

A booklet of 45 pages cannot be a complete guide to audit committees. It can, however, serve as a primer and, in fact, does serve as a good starting point, particularly the chapter dealing with "Preparation for and Conduct of the Audit" including selection of the external auditor, review of the audit plans, and meetings with the external auditor.

There are several very good lists of issues to be considered, and questions to be asked, of both management and the external auditors, and certain warning signals. I would have included more discussion about the company's internal audit function, including the audit committee's responsibility to inquire as to its qualifications of auditors, reporting responsibility, review of internal audit reports by the audit committee, and meetings with the director of internal audit both with and without management present.

There is a brief chapter identifying...