The Audit Committee Handbook, 4th Edition

By Louis Braiotta, Jr.

Wiley, ISBN: 0-471-48884-4; $75.00 hardcover; 428 pages

Reviewed by Vincent J. Love

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Professor Braiotta’s fourth edition of this superb reference addresses the full range of responsibilities of an audit committee, including new requirements under the Sarbanes-Oxley Act of 2002. Numerous recent financial statement frauds at major corporations, and the higher standards to which boards of directors and their audit committee members are now held, make this book an excellent resource even for practitioners that do not currently serve on an audit committee or audit a public company. I highly recommend this book as a worthwhile addition to any professional library, or as a handout to members of audit committees.

Although not an easy read, this book is an effective reference. The guidance is relevant to all audit committees, not just those of public or for-profit entities. Anything about the organization, function, responsibility, liability, and reporting of an audit committee will be found here. As in previous editions, it also covers the basics of accounting, auditing, and reporting, including ample references to the professional and other literature.

Each chapter’s section on “sources and suggested readings” allows the reader who wants more information to delve deeper. With this edition, many of the appendices, including an excellent glossary and excerpts from the standards, regulations, and rules relevant to audit committees that formerly were included in the book, have been placed on a website for easy access and updating.

The book comprises four parts:

  • Getting acquainted with your responsibilities;
  • The planning function of the audit committee;
  • The monitoring and reviewing functions of the audit committee;
  • The reporting function and the audit committee.

The first part starts with the chapter “Corporate Accountability: The New Environment,” an introduction to what’s new since the last edition. It aggressively tackles the new rules and regulations coming out of the Sarbanes-Oxley Act (SOA), addressing the responsibilities of the audit committee, its function, size, membership, and role in the internal and external audit processes. Flowcharts, tables, checklists, and similar excellent exhibits are found throughout. These will be extremely useful to audit committee members in understanding and effectively executing their duties and responsibilities. They will also assist external auditors in counseling committee members and evaluating the activities of the committee when assessing the internal control environment.

Part 1 also addresses the basic roles and responsibilities of an audit committee, the users of the accounting information made public by an entity, legal issues involving audit committees, and an overview of accounting and auditing. The checklist on minimizing the audit committee’s legal liability is a must-read for any potential member of an audit committee.

Part 2 discusses audit planning and the audit committee’s participation therein. It includes an example of an auditing cycle and an exhibit on risk factors relating to misstatements arising from fraudulent financial reporting. It also addresses subjects such as the audit committee’s role in planning the audit and recommending the appointment of the independent auditor. The comprehensive checklist of the key SOA provisions related to audit committees is a must-have tool.

Part 3 focuses on the monitoring and reviewing functions of the audit committee, which have become more prominent with SOA’s impact on the establishment, monitoring, and reporting on internal control, as well as its increased emphasis on the financially knowledgeable members of the audit committee. This section addresses topics related to the company’s system of internal control, the internal audit function, accounting policy disclosures, fraud and the auditor, and general business practices such as questionable foreign payments and corporate perquisites—those benefits received by the senior officers of the company that have been the subject of sensational litigation and investigative reports.

The final section includes information and guidance on the external auditor’s reports and the audit committee’s own report to the board on its activities. The chapter on the external auditor’s report is designed to familiarize the audit committee with the types of audit opinions given, reporting on interim financial statements, and special reports. With the new SEC requirements, many mandated by SOA, the chapter on reports assumes new and greater importance. It contains information and examples that will be very helpful to an audit committee when it prepares its own report to its full board of directors. The author concludes with observations on the dynamic changes in the importance, duties, and responsibilities of the audit committee. Change is good, but it must be effective and controlled.

Vincent J. Love, CPA, is managing partner of Kramer, Love & Cutler LLP, of New York City. He is also a member of the NYSSCPA’s Legislative Task Force and its Quality Enhancement Policy Committee.





















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