The audit committee handbook

1 Corporate Accountability: The New Environment, 1 The Nature and Importance of Corporate Accountability, 3 Recent Developments in Corporate Accountability, 10 Corporate Accountability and the Audit Committee, 29 Sources and Suggested Readings, 39 2 Audit Committees: Basic Roles and Responsibilities, 42 Organization of the Audit Committee, 42 The Audit Committee Functions, 58 The External and Internal Auditing Process, 80 Sources and Suggested Readings, 94 3 The External Users of Accounting Information, 97 Introduction, 97 The Investors, 99 Credit Grantors, 112 Regulatory Agencies, 120 Other Outside Constituencies, 128 Important Developments in Business Reporting and Assurance Services, 131 Sources and Suggested Readings, 139 4 The Legal Position of the Audit Committee. 143 General Legal Responsibilities, 144 Legal Cases Involving the Audit Committee, 152 Guidelines for Minimizing Legal Liability, 172 Sources and Suggested Readings, 176 5 Rules of the Road—Auditing and Related Accounting Standards, 178 An Overview of Generally Accepted Auditing Standards, 178 An Analysis of the Auditing Standards, 180 Integration of Auditing and Related Accounting Standards, 181 Attestation Engagements, 189 International Auditing Standards, 189 Sources and Suggested Readings, 196 PART TWO THE PLANNING FUNCTION OF THE AUDIT COMMITTEE 197 6 An Overview of Audit Planning, 199 Meaning of Audit Planning, 199 Analysis of Audit Planning and the Committee, 200 Benefits of Audit Planning, 209 Components of the Corporate Audit Plan, 210 Sources and Suggested Readings, 217 7 Audit Committees’s Role in Planning the Audit, 219 The Committee’s Planning Function, 219 Developing an Integrated Planning Approach, 220 Recommending the Appointment of the Independent Auditors, 228 Sources and Suggested Readings, 232 PART THREE THE MONITORING AND REVIEWING FUNCTIONS OF THE AUDIT COMMITTEE 233 8 Monitoring the System of Internal Control, 235 Meaning of Internal Control, 235 Responsibility for the System of Internal Control, 238 The Role of the Audit Committee, 242 Sources and Suggested Readings, 247 9 Monitoring the Internal Audit Function, 249 Purpose and Need for Monitoring the Internal Audit Function, 249 Reviewing the Organization of the Corporate Audit Staff, 252 Appraising the Quality of the Auditing Staff, 276 Sources and Suggested Readings, 290 10 Reviewing Accounting Policy Disclosures, 291 Audit Committee’s Review Objective, 291 Accounting Policy Disclosures, 296 Guidelines for Reviewing Accounting Policy Disclosures, 312 Sources and Suggested Readings, 319 11 A Perspective on Fraud and the Auditor, 320 Meaning of Fraud in a Financial Statement Audit, 320 The External Auditor’s Responsibility, 329 Investigating Known Fraud, 337 The Audit Committee’s Oversight Approach to Fraud Risk Assessment, 339 Sources and Suggested Readings, 346 12 Reviewing Certain General Business Practices, 349 Questionable Foreign Payments, 349 Corporate Perquisites, 358 Corporate Contributions, 362 Sources and Suggested Readings, 367 PART FOUR THE REPORTING FUNCTION AND THE AUDIT COMMITTEE 371 13 Independent Auditors’ Reports, 373 The Auditors’ Reports on Audited Financial Statements, 373 Other Auditing Opinions, 377 Other Reports of the Auditors, 381 Sources and Suggested Readings, 387 14 The Audit Committee’s Report and Concluding Observations, 389 Purpose of the Audit Committee’s Report, 389 Guidelines for Preparing the Report, 391 Concluding Observations, 397 Sources and Suggested Readings, 403 APPENDIXES A Accounting, Auditing, and Attestation Standards Topical Index of References to Accounting Principles Board, Financial Accounting Standards Board, Statement on Auditing Standards, Statement on Standards for Attestation Engagements, and Accounting Standards Executive Committee Pronouncements as of June 30, 2003, 405 B Professional Accounting Associations, Business Organizations, Boards, Commissions, and Directors Publications, 413 Appendixes C–J are available on The Audit Committee Handbook website at www.wiley.com/go/auditcommittee. INDEX 417