May 7, 2003
Corporate audit committees and auditor independence have been the subject of increased regulation in the last few years. New listing standards with respect to audit committees, including requirements for committee charters, the composition of committees and the qualifications and independence of directors serving on such committees, were adopted by the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market and the Nasdaq SmallCap Market.
In addition, the Securities and Exchange Commission ("SEC") adopted several new disclosure rules focused on audit committees. These SEC rules require specific information to be reported in a company's annual meeting proxy materials, including a requirement that the committee report whether it has considered whether the provision of consulting and other non-audit services by outside auditors is compatible with maintaining auditor independence.
Under the new listing standards, by June of 2000 audit committees were required to have adopted formal written charters which comply with the new listing standards. Some of those charters and the procedures of the committees they govern are thus less than two years old. Nevertheless, we would like to alert our clients that it may be prudent to review their audit committee charters and related procedures at this juncture, in light of the Enron collapse and recent related market events, the level of governmental legislative, regulatory and investigative activity these events have triggered, as well as the increased focus of the accounting industry on risk allocation.
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