The U$.$S$.$ national stock exchanges require listed companies to have an independent audit committee.

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Part $1$

Requirement a$.$ Describe an audit committee.

An audit committee is a special committee formed by

the board of directors

and are made up of

$$

The$$ Sarbanes$-$Oxley Act requires that

$$

all

half of

two$-$thirds of

members of the audit committee be

$$

employees of the company,

independent auditors or former independent auditors,

independent directors,

managers or former managers of the company,

and the committee should include at least one member who is$$ a$($n$)$

$$

attorney.

board member.

financial expert.

officer of the company.

The audit committee serves as a liaison between the

$$

employees and the board of directors.

independent auditor and executive managers.

independent auditor and the board of directors.

shareholders and executive managers.

Part $2$

Requirement b$.$ What does it mean for the audit committee members to be$$ "independent"?

An audit committee member is considered independent if they

$$

are

are not

affiliated with the company or any subsidiaries in a capacity other than

$$

as a member of the board.

internal auditing services.

management decision making.

preparation of the financial statements.

For$$ example, they

$$

can assist in internal controls when found in internal audit reports.

can be an employee that does not have management decision$-$making.

cannot be an executive officer of the company.

cannot provide names of other services that require additional company assistance.

In$$ addition, audit committee$$ members, in order to be$$ independent, are barred from

$$

accepting any consulting, advisory or other compensatory fee, excluding board member capacity.

becoming a board member and participating in management decisions.

staying a member past the five years that the SEC rules dictate.

voting on items that could determine which audit firm is hired.

Part $3$

Requirement c$.$ What are the typical functions performed by an audit$$ committee? $($Select six$$ items.$)$

The functions of an audit committee may include the$$ following: