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277 Wellington Street West Suite 250
Toronto, Ontario M5V 3H2 Vienna, VA 22182
(416) 204-3311 (703) 506-3570
www.icd.ca www.niri.org

Institute of Management Accountants New York State Society of Certified
10 Paragon Drive Public Accountants
Montvale, NJ 07645 530 Fifth Avenue
1-800-638-4427 New York, NY 10036-5101
www.imanet.org 1-800-633-6320
www.nysscpa.com
416 Appendix B


New York Stock Exchange, Inc. Russell Reynolds Associates
Eleven Wall Street 200 Park Avenue
New York, NY 10005 New York, NY 10166
(212) 656-2017 (212) 351-2000
www.nyse.com www.russreyn.com

Organization for Economic U.S. General Accounting Office
Co-operation and Development Washington, DC 20548
2 Rue Andr©-Pascal (202) 275-6241
75775 Paris, Cedex 16 www.gao.gov
France
www.oecd.org U.S. Securities and Exchange
Commission
Oxford Analytica, Ltd. 450 Fifth Street N.W.
52 New Inn Hall Street Washington, DC 20549
Oxford OX1 2QB, England (202) 942-8088
(44) 865-244442 www.sec.gov

Public Company Accounting
Oversight Board
1666 K Street N.W.
Washington, DC 20006
(202) 207-9100
www.pcaobus.org
Index

ABA. See American Bar Association (ABA) Adelman, James, 123
Accounting and Review Services Committee Adelphia, 137
Standards for Attestation Engagements. See Adverse opinion, 375, 380, 381
Statements on Standards for Attestation Advisors, 78, 401
Engagements (SSAEs) Advisory Capital Partners, 8
Accounting information AICPA. See American Institute of Certified
external users of. See External users of Public Accountants (AICPA)
accounting information Albrecht, William S., 209
and financial statements, 103, 104 Alcoa Aluminum Company, 356
SEC need for, 121 Allen, Brandt, 329
stakeholder groups American Accounting Association, 182, 413
need for accounting information, 129 American Assembly, 6, 7, 99, 353, 354, 413
as users of accounting information, 6, American Bar Association (ABA), 413
129“131 functions of audit committee, 58
Accounting methods. See also Changes in Task Force on Corporate Responsibility
accounting audit committee recommendations, 171, 172
flexibility in selection of, 185 governance policies, 169“171
Accounting policy American Institute of Certified Public
audit committee role, 291“296 Accountants (AICPA), 413
changes in accounting. See Changes in accounting policy disclosures, 292
accounting Auditing Standards Board. See Auditing
critical accounting policies, 306“309 Standards Board (Auditing Standards
Wal-Mart example, 297, 298 Executive Committee)
disclosures, 291, 296“305 Code of Professional Ethics, Rules of
checklist, 318 Conduct, 184
critical accounting policies, 306“309 committees and blue ribbon panels, impact of,
guidelines for reviewing, 312“318 137
report of management, 295, 314 Control Risk Audit Guide Revision Task
significant, 296, 298“305 Force, 200, 201
Accounting principles. See Accounting standards CPA Web Trust, 136
Accounting Principles Board, 184 Financial Reporting Coordinating Committee,
Opinion No. 28, interim financial reports, 386 135
summary of references, 406“410 financial reports, 130, 131
Accounting standards, 98, 178. See also independent auditors, 293
Auditing Standards Board (Auditing Special Committee on Assurance Services
Standards Executive Committee) (Elliott Committee), 131, 135, 136, 410
and accounting principles, 98 Special Committee on Financial Reporting
generally accepted accounting principles. See (Jenkins Committee), 130“135
Generally accepted accounting Statements for Performing and Reporting on
principles (GAAP) Quality Reviews, 189

417
418 Index

American Institute of Certified Public future trends, 399“403
Accountants (cont.) importance of, 397, 398
Statements of Position, summary of, 411, 412 improvement, approach to, 87“92
Statements on Quality Control Standards, 189 independence. See Independence standard
Statements on Responsibilities in Tax independent auditors, relationship with, 83, 84
Practices, 189 internal audit group, relationship with, 33, 85,
Statements on Standards for Accountants™ 94, 249“252, 263, 264
Services on Perspective Financial leadership, 56
Information, 189 legal responsibilities. See Legal
Statements on Standards for Accounting and responsibilities of audit committee
Review Services, 189 liability
Statements on Standards for Management future trends, 400, 401
Consulting Services, 189 minimizing, 172“176
web site, 136 meetings, 58, 392
American Law Institute (ALI), 413 need for, 43
American Society of Corporate Secretaries, Inc., operational objectives, establishment of, 105,
413 106
Analytical procedures, 203 planning function. See Audit planning
Andersen, Maryellen F., 102 qualifications of members, 55, 56
Annual reports, 79. See also Financial reporting quality assurance, 93
Antitrust laws, 128 reliance on, 145, 146
Assets, misappropriation of, 207, 208, 321, 322, report. See Audit committee report
329. See also Fraud responsibilities, 44, 45
Association for Investment Management and legal. See Legal responsibilities of audit
Research, 102, 413 committee
Association of Certified Fraud Examiners, role of. See Role of audit committee
322“325, 413 SEC™s nine-point action plan, 11“13
Association of Government Accountants, 413 size of, 44, 57
Assurance Services Committee. See Special statutory regulation, 83, 84
Committee on Assurance Services studies, summaries of research, 34, 35
(Elliott Committee) surveys of, 30, 31
Attestation engagements, 211“215 Audit committee report, 389“399
Attestation standards. See Statements on Audit cycle, 200, 202
Standards for Attestation Engagements and audit committee report, 392
(SSAEs) initial planning, 219, 220, 224
Attorneys postaudit, 219, 227, 228
minimum standards of conduct, 169 preaudit planning, 224“227
Audit committee segments of, 219
accountability relationships, 31 Audit directors
accounting and finance knowledge, 45 education and professional development, 220,
CEO, relationship with, 32, 43 222“224
CFO, relationship with, 32, 33, 43, 45 qualifications, 45, 55, 56
chairman, 56 Audit opinions. See Auditors™ report
charter, 48“54 Audit planning, 199, 200
communication with, 331“333, 384 audit committee™s role, 219
conflicts of interest, 44 audit cycle. See Audit cycle
corporate accountability, 390 audit risk, 199“201, 203“208
defined, 42“43 benefits of, 209, 210
delegation of responsibility and authority, components of plan, 210, 215, 217
45“48 defined, 199
establishment of, 45 independent auditor, appointment of, 228“230
financial reporting goals. See Financial initial planning, 219, 220, 222, 224
reporting operational audits, form, 216
functions of. See Functions of audit postaudit, 219, 227, 228
committee fraud risk, 343“344
Index 419

preaudit, 224“227 Baker, Richard T., 56
fraud risk, 342“343 Banks. See also Credit grantors
strategy, 200, 202, 203, 206, 208 banking reform legislation (FDICIA). See
framework for, 206, 208 Federal Deposit Insurance Corporation
Wal-Mart example, 221, 222 Improvement Act (FDICIA)
Audit risk, 203 financial information, need for, 112, 113
AICPA Control Risk Audit Guide Revision Barrett, Michael J., 260
Task Force, 200“201 Benjamin, James J., 112
analytical procedures, 203 Beresford, Dennis R., 354
and audit planning, 199“200 Bill and hold, 203
risk factors, 204“208 Billings, Anthony B., 124
Auditing standards, 178. See also Generally Blue Ribbon Committee (BRC)
accepted auditing standards (GAAS) Improving the Effectiveness of Corporate
Auditing Standards Board (Auditing Standards Audit Committees, 14“17
Executive Committee), 80, 137 Board of directors
audit committee rules and standards, 17“19 accountability. See Corporate accountability
compliance attestation standard, 242 audit committee
illegal acts and irregularities, external report. See Audit committee report
auditor™s responsibilities, 357, 358 responsibilities and authority, formulating, 45
internal auditing, importance of, 250 board meetings, 6
internal control structure corporate policies, 6
defined, 236 duties of, 4
elements of, 236 establishment of audit committee, 45
SEC engagements, quality and acceptability evaluation of, 8
of accounting principles, 98 fiduciary responsibility, 6
Standards for Attestation Engagements. See financial matters, responsibility for, 9
Statements on Standards for Attestation future trends, 402
Engagements (SSAEs) illegal acts, responsibilities regarding, 357,
Statements on Quality Control Standards, 109 358
Auditing Standards Executive Committee. See internal control, responsibility for, 243
Auditing Standards Board (Auditing laws and regulations, compliance with, 356,
Standards Executive Committee) 357
Auditors™ report, 373 powers and responsibilities, 4
adverse opinion, 375, 380, 381 Sarbanes-Oxley Act. See Sarbanes-Oxley Act
audit opinion, 82 of 2002
audited financial statements, 82, 373“381 standing committees, 6
bibliography, 387, 388 statutory accountability, 8
“clean opinion,” 374 Bond, James D., 354
contents of, 82 Braiotta, Louis, Jr., 56
disclaimer of opinion, 375, 380 Breeden, Richard C., 101
explanatory language, 375“377 Bribery. See Foreign Corrupt Practices Act
generally accepted auditing standards. See Bromark, Ray, 44
Generally accepted auditing standards Bull, Ivan, 30
(GAAS) Burnaby, Priscilla A., 109
independent accountant™s report, 386 Burton, John C., 9
independent auditor™s report, 375, 376, 378, Business combinations
379 change in reporting entity, 310“312
interim financial statements, 381“386 Business judgment rule, 143
opinions, types of, 375 Business practices
qualified opinion, 375, 377 corporate contributions, 362“369
special reports, 386, 387 corporate perquisites, 358“361
standard report (unqualified opinion), 374“377 foreign payments. See Foreign Corrupt
standards of reporting, 179, 181“189 Practices Act
Wal-Mart example, 83 Business Roundtable, 4, 5, 60, 61, 100, 129,
Australian Institute of Company Director, 414 356, 357, 414
420 Index

Business Roundtable (cont.) internal auditors, role of, 251
Corporate Organization Policy Committee, 43 internal control
Principles of Corporate Governance, 5, 6, 11, reporting, 239
21, 23“25 responsibility for, 242“244
Internal Control-Integrated Framework
California Life Corporation, 157 report, 237
Canadian Institute of Chartered Accountants, reporting to external parties, illustrative
136, 414 report, 238
Carnes, Kay C., 55 Compensation
Carroll, Margaret, 102 executive, 127
Case law and agency action, 152, 153 perquisites, 358“361
California Life Corporation, 157 Complaint procedures, 78
Guttman v. Nvidia Corporation, 159, 169 Compliance audits, 217
H.J. Heinz, 157, 158 Computer fraud, 328, 329
Killearn Properties, Inc., 154“156 Concepts statements. See Statements of
Livent, Inc., 158 Financial Accounting Concepts (SFAC)
Lum™s, Inc., 153, 154 Conference Board, 414
Manzo v. Rite Aid Corporation, 158 Conference Board Report, 400
Mattel, Inc., 154 Conflicts of interest
Penn Central, 153 audit committee members, 44
Playboy Enterprises, Inc., 157 auditors™ disclaimer, 377
U.S. Surgical Corporation, 156 and corporate contributions, 364, 365
Casework International, 400 Conspiracy Act, 151
Castellano, Joseph F., 30, 261 Consumers
Certifications, 238, 400 as users of accounting information, 128, 129
Certified Internal Auditor (CIA), 276, 279 Contributions, corporate, 362“369
Certified public accountants (CPAs), 180 Cooked books, 160, 203
Chang, Lucia S., 104 “Cookie jar reserves,” 103
Changes in accounting, 309 Corporate accountability, 398
accounting estimate, 310 and audit committees, 390
accounting methods, 185, 186 board of directors. See Board of directors
accounting principle, 309“311 meaning of, 3“8
examples, 311, 315“317 need for, 8, 9
reporting entity, 310“312 prerequisites, 7
Charter, audit committee, 48“54, 391 recent developments, 10“29
Checklists self-assessment checklist, 38
accounting policy disclosures, 318 surveys and studies, 30
key sections of Sarbanes-Oxley Act for audit Corporate Board, 414
committees, 231 Corporate governance, 349, 398, 402
liability, minimizing, 173“176 Business Roundtable principles, 5, 6
Chief executive officer (CEO) and corporate accountability, 8
and audit committee, 32, 43 internal control assessment strategy, 7
certification of reports, 238 COSO report. See Committee of Sponsoring
internal control responsibility, 242, 243 Organizations (COSO)
as source of information for audit committee Cost Accounting Standard Board, 184
report, 393 CPA Web Trust, 136
Chief financial officer (CFO) Credibility, 8“9, 293, 398
and audit committee, 32, 33, 43, 45 Credit grantors
and audit planning, 203 importance of, 112
certification of reports, 238 issues of concern to audit committee, 113, 114
as source of information for audit committee need for accounting information, 112, 113
report, 393 quality of disclosure, 114
Cohen, Jeffrey, 110 recommendations to, 114
Committee of Sponsoring Organizations SFAS statements relating to, 114“120
(COSO), 220, 414 short-term versus long-term, 112
Index 421

Crossley, M., 326, 337 consumers, 128“129
Crumbley, Larry D., 124 credit grantors, 112“120
“Cute accounting,” 160, 203 employees, 128“129
investors, 99“112
Defalcation. See Assets, misappropriation of regulatory agencies, 120“128. See also
DiPiazza, Samuel A., Jr., 8 Securities and Exchange Commission
Directors. See also Board of directors (SEC)
“grey” area directors, 55 stakeholder groups, 128“131
and independence of audit committee. See
Independence standard “Facilitating payments,” 350
Directors $ Boards, 414 Fagan, Peg, 124
Directorship Search Group, 414 Fairness, 188, 189, 335
Disclaimers, 375, 377, 380, 382 FASB. See Financial Accounting Standards
Disclosures, 79 Board (FASB)
accounting policies. See Accounting policy Federal Deposit Insurance Corporation

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