Question

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the audit committee. Describe three of those requirements.

Answer 1

Requirements for the composition and duties of the audit committee

1) Audit committee members should be independent which means that no member is allowed to accept any payment from the company directly or indirectly when he is a member on the board. Also the member should not be affiliated or connected with the company apart from being a director in his own capacity.

2) Audit committee e should be responsible for appointment, compensation and to overview the work of audit firm who has been appointed by them and to analyse the audit report prepared by the audit firm . Also any loopholes or critical observations should be brought to the notice of audit committee for which the audit committee should provide reasoning to the audit firm.

3) Audit committee should pay proper attention to any complaints from the whistleblower or any employee related to any fraud going on in the organisation. This type of complaints should be kept confidential by the audit committee and proper actions to be taken against the complaints. Hence audit committee should create a procedure where complaints are received and treatment to the complaints are made properly.