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The Expanding Role of the Audit Committee

By William L. Floyd

The role the independent audit committee of a board of directors, not unlike the compensation committee, the nominating and governance committee, and perhaps a risk management committee, is becoming increasingly important as significant responsibilities shift to the board of directors. Regulatory authorities such as the Public Company Accounting Oversight Board (PCAOB) and the Securities and Exhange Commission (SEC) are focusing on and expanding the role and the responsibility of these committees. As part of this evolution, the audit committee, which was the first committee whose independence was mandated, continues to be the one whose role is evolving most rapidly and on which additional requirements are likely to be imposed.

In addition to regulation and oversight by the SEC, public company financial statements, and thus the audit committee, are affected by rulemaking of the PCAOB. The increased focus of investors on governance of audit firms, their independence and their objectivity, is likely to increase the role of the audit committee. In addition, the PCAOB's recent proposals and rulemaking with regard to auditor independence and objectivity suggest increasing responsibility for the audit committee. Along with this increasing responsibility, increasing exposure will result, and the need for independent counsel for the audit committee will intensify.

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