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What to Do When an Audit Committee Complaint Arrives

By Jeffrey E. Jordan
July 28, 2005

Much attention has been paid to the requirements of the Sarbanes-Oxley Act (SOX) and the stock exchanges and Nasdaq that issuers establish procedures under which their audit committees can receive complaints, including anonymous complaints. Various service providers now offer issuers solutions in this area, including procedures to submit complaints through hotlines and e-mail addresses maintained by the service providers. But none of the Sarbanes-Oxley Act, the rules or the extensive commentary about establishing complaint procedures addresses what the audit committee is required to do with a complaint when one is received. This article briefly discusses some considerations in dealing with such a complaint.

SOX and Its Requirements

Section 301 of SOX required the Securities Exchange Commission to adopt a rule that the issuer's audit committee establish procedures for “the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters” and “the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.” The Commission adopted Securities Exchange Act Rule 10A-3(b)(3) substantially duplicating the text of the Act, and the stock exchanges and Nasdaq have each adopted rules substantially duplicating the text of the Act and the Commission's rule.

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