Self Interest Threats
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Audit committee formation is considered to be compulsory in both countries for all the companies who are registered with NYSE and ASX respectively. There are different recommendations and guidelines for the audit committees for both of the countries. The audit committee is responsible very crucial functions of the audit process such as hiring of external auditor, deciding about the audit fee and meeting the code of conduct and deciding about the non-audit services. (MinterEllison Lawyers, 2003)
Thus these requirements for the independence and financial expertise of the audit committee are very important. In the USA the standard setting body is NYSDE and in Australia is ASX.
In Australia the standards for the audit committee has been set for the audit committee under ASXs Principles of Good Corporate Governance and Best Practices Recommendations. The principle 4 of the POGCGBPR is giving directions for the audit committee requirements. As per Principle 4 the majority of the members of the audit committee should be non-executive directors, on independent charter and should be independent in all terms. This means they should not be involve with the company by the means of business or financial benefits. They should analyse all the issues individually and independently. So far the financial expertise is concerned then in Australia it is mandatory for all the members of the audit committee to have financial knowledge and experience. However, it is mandatory at least for the one member of the committee to have financial expertise based on education and past industry experience. If all these requirements have been fulfilled only then the audit committee is said to be meeting the fundamentals. . (MinterEllison Lawyers, 2003)
In the USA too the NYSDE has set the almost same rules. In fact Australia has derived it regulations from the USA regulations only. Same in USA majority of the members which is mixture of executive and non -executive directors should be independent by all means that is they should not involve in any business or financial matter with the company. Also it is mandatory for the non-executive directors to arrange individual meetings while no management member is involved in the meeting. . (MinterEllison Lawyers, 2003)
If we talk about the financial expertise requirement of the audit committee then same like Australian requirement it is compulsory for the audit members to be financially educated and industry experience. Also at least one of the members of the audit committee should be carrying financial expertise in all terms. However as per the Sarbanes-Oxley Act it is necessary for the firms to disclose the financial expertise and education qualifications in the annual reports. If they are not able to do so then the requirements come for the explanation. It is also called if not then why criteria for the firms. . (MinterEllison Lawyers, 2003)
Hence it can be seen that most of