19 December 2003

Sarbanes-Oxley’s Audit Committee Deadline Sparks Fear, Loathing

Sarbanes-Oxley’s Audit Committee Deadline Sparks Fear, Loathing

Boardroom Buzz
by Randy Myers

As U.S. businesses work overtime to convince the public that they’ve improved their corporate governance practices, it’s easy to find CEOs publicly praising the Sarbanes-Oxley Act and its new mandates for audit committees. But in the trenches, where corporate directors are charged with making sure those mandates are implemented, reviews are much more mixed.

Many board members report good progress in staffing their audit committees with independent directors, establishing confidential whistleblower complaint systems, and putting audit committees in charge of the outside auditors. But there are still plenty of companies where directors are “kind of confused,” says University of Georgia accounting professor Dennis R. Beresford, former chairman of the Financial Accounting Standards Board and a director of three public companies (Kimberly-Clark, Legg Mason, and MCI). “At each company that I’m involved in,” he says, “we have charters that we’re updating and checklists we’re using, but it’s still hard to keep track of everything.”

With the deadline for meeting the new audit committee requirements still months away—companies have until their first annual shareholders’ meeting after January 15, 2004—directors seem most bothered by the rule that compels a public company to put a financial expert on its audit committee or explain to the investing public why it doesn’t have one.
As defined by the Securities and Exchange Commission, the audit committee’s financial expert must, among other things, understand generally accepted accounting principles (GAAP). And that, says Thomas R. Beecher Jr., an attorney and the lead director of Albany International, a pulp and paper supplier, “is trying to raise board competency to an unreasonable level of knowledge. Getting anybody to accept that responsibility will not be easy unless they’ve just retired from an accounting firm.”

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