Matrix of regulatory framework and key features of audit committees Area Audit oversight and selection Composition and expertise United The SOX and its rules set out specific activities Each audit committee must be States required of a listed company’s audit committee composed of at least three relating to the external auditor. The audit members. committee shall be responsible for the following Each member of the audit audit oversight activities: committee shall be a member of the board of directors, and shall Appointment, setting the compensation and otherwise be independent. In retention of the external auditor; order to be considered to be Overseeing the work of the external auditor in independent, a member of an preparing and issuing any audit report audit committee of an issuer may not, other than in his or her including resolving any disagreements capacity as a member of the between the management and the audit firm committee, the board of directors, or regarding financial reporting; any other board committee: Approval of all audit services and non-audit accept any consulting, advisory, or services; other compensatory fee from the Evaluation of reports of external auditor issuer; or on the following matters: (1) all critical be an affiliated person of the accounting policies and practices to be issuer or any subsidiary thereof. used; (2) all alternative treatments of financial information within generally Additional independence accepted accounting principles that have requirements under NASDAQ requirements The member been discussed with management – must not have participated in the officials of the issuer, ramifications of the use preparation of the financial of such alternative disclosures and treatments, statements of the company or and the treatment preferred by the registered any current subsidiary at any time public accounting firm; and during the past three years. (3) other material written communications At least one member of the audit between the registered public accounting firm committee must be a financial and the management of the issuer, such as any expert or a person who has an management letter or schedule of unadjusted understanding of financial differences. statements and GAAP; experience in preparing, auditing, analyzing or evaluating financial statements of companies comparable to the company or experience in actively supervising one or more persons engaged in such activities; experience in applying GAAP to accounting for estimates, accruals and reserves; and an understanding of internal accounting controls, procedures for financial reporting and the functions of committees.
Matrix of regulatory framework and key features of audit committees Area Audit oversight and selection Composition and expertise United States The SOX and its rules set out specific activities required of a listed company’s audit committee relating to the external auditor. The audit committee shall be responsible for the following audit oversight activities: Appointment, setting the compensation and retention of the external auditor; Overseeing the work of the external auditor in preparing and issuing any audit report including resolving any disagreements between the management and the audit firm regarding financial reporting; Approval of all audit services and non-audit services; Evaluation of reports of external auditor on the following matters: (1) all critical accounting policies and practices to be used; (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the issuer, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the registered public accounting firm; and (3) other material written communications between the registered public accounting firm and the management of the issuer, such as any management letter or schedule of unadjusted differences. Each audit committee must be composed of at least three members. Each member of the audit committee shall be a member of the board of directors, and shall otherwise be independent. In order to be considered to be independent, a member of an audit committee of an issuer may not, other than in his or her capacity as a member of the committee, the board of directors, or any other board committee: accept any consulting, advisory, or other compensatory fee from the issuer; or be an affiliated person of the issuer or any subsidiary thereof. Additional independence requirements under NASDAQ requirements – The member must not have participated in the preparation of the financial statements of the company or any current subsidiary at any time during the past three years. At least one member of the audit committee must be a financial expert or a person who has an understanding of financial statements and GAAP; experience in preparing, auditing, analyzing or evaluating financial statements of companies comparable to the company or experience in actively supervising one or more persons engaged in such activities; experience in applying GAAP to accounting for estimates, accruals and reserves; and an understanding of internal accounting controls, procedures for financial reporting and the functions of committees.
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