Which of the following statements concerning Board committees is FALSE? A) The compensation committee should consist of independent members and link executive compensation to long-term performance. B) Members of the audit committee should be independent experts in accounting and finance. C) The nominations committee is responsible for recruiting qualified board members and preparing an executive management succession plan. D) The audit committee has authority over the procedures used to audit the entire corporate group including subsidiaries and affiliates.
B. Dont think they need to be experts in accounting
I would think B on this one, Sarbanes Oxley states that all the members of the audit committee have to be financially literate and at least one has to be a defined financial expert. The answer B suggests that all members of the audit committee have to be designated experts where only one is required.
Is it D? Audit is performed by external independent auditors selected by the Audit Committee, and the Audit Committee is responsible for having the audit performed in compliance with the generally accepted audit standards (GAAS), ensuring that the independent auditors have authority over the audit of the entire corporate group and subsidiaries and affiliates. The authority rests with the independent auditors, the procedures are those described in GAAS, not with the Audit Committee.
B for sure. D is one of the duties of the audit committee. Audit commit should be independent of management influence and also favor decisions to shareholders (like errors/misleading financial statements)>
Well, if you read on page 171 of volume 4 CFAi text, it says “relevant experience of finance AND accounting”. No need for the same person to have both accounting and finance experience, but the committee itself has to have it. Further, the AC has to ensure that the “independent auditors have authority over the audit of the entire company…”. I’m willing to bet this one is not B:)
Dunno map1, “relevant experience” is not the same as an “independent expert” Bad question imo
Also the concept of procedures used to audit is critical in this one. Again with the changes from Sarbane oxley the management have to sign that a internal audit function is operating effectively. This means that it is management’s (here comes the audit committee) responsibility to ensure that the procedures are operating correctly. Since they have to sign their life away to the functioning nature of the audit activity you would think that they have a level of oversight and control. Thus I think that D is withing the responsibility of the audit committee. Therefore by default answer equals B.
The correct answer was D) The audit committee has authority over the procedures used to audit the entire corporate group including subsidiaries and affiliates. The independent auditor has authority over the audit procedures. The audit committee is responsible for hiring and supervising the independent auditor.