The Act also requires companies to disclose whether they have appointed at least one financial expert to the audit committee. In addition, the audit committee is a forum for discussing financial concerns candidly and objectively.ДЇor companies operating under the Sarbanes-Oxley Act, the Act requires corporations to appoint only independent members to the audit committee. The annual audit serves as a check and balance over the companyвЂ™s financial reporting practices. Their basic responsibility is in helping independent auditors to oversee the corporationвЂ™s financial reporting system in a process thatвЂ™s independent of management.ДЄudit committees provide vital oversight of the corporationвЂ™s financial reporting processes, internal controls and independent auditors. Defining the Audit CommitteeДЄn audit committeeВ is appointed by the board and is composed of between three and seven board directors who arenвЂ™t part of the corporationвЂ™s management. Boards of directors outline the duties, authority and responsibilities of their audit committees.

Audit committees primarily address issues related to the organizationвЂ™s financial statements, accounting processes and internal systems of control.Д®very organization has different rules for its audit committee. The Standard of Care means that board directors must place the best interests of the organization above their own interests. The audit process is a fiduciary duty of board members called the Standard of Care. While the audit committee takes on the responsibility for performing the audit, they are also responsible for other important tasks relative to the audit and the corporationвЂ™s internal control system. On the other hand, social ties formed through вЂњadvice networksвЂќ do not seem to hamper the quality of audit committee oversight.Дata Availability: All data are publicly available from sources identified in the text.Most board directors equate the role of the audit committee with the process of conducting the corporationвЂ™s annual audit. Auditors are also less likely to issue going-concern opinions or to report internal control weaknesses when friendship ties are present. In particular, we find that firms whose audit committees have вЂњfriendshipвЂќ ties to the CEO purchase fewer audit services and engage more in earnings management. Based on a 2004 to 2008 sample of U.S.-listed companies after the Sarbanes-Oxley Act, we find that these social ties have a negative effect on variables that proxy for oversight quality. Although many audit committees appear to be вЂњfullyвЂќ independent, anecdotal evidence suggests that CEOs often appoint directors from their social networks. To ensure that audit committees provide sufficient oversight over the auditing process and quality of financial reporting, legislators have imposed stricter requirements on the independence of audit committee members.

Journal of Forensic Accounting Research Teaching Notes.

Journal of Forensic Accounting Research.

The Journal of the American Taxation Association.

Journal of Management Accounting Research.

Journal of International Accounting Research.Journal of Information Systems Teaching Notes.Journal of Governmental & Nonprofit Accounting Teaching Notes.Journal of Governmental & Nonprofit Accounting.Journal of Emerging Technologies in Accounting Teaching Notes.Journal of Emerging Technologies in Accounting.Current Issues in Auditing Teaching Notes.AUDITING: A Journal of Practice and Theory.Issues in Accounting Education Teaching Notes.

Audit committee oversight process