Attention has focused on those who perform oversight of the financial reporting process. In light of the emphasis on oversight of financial reporting, the authors believe that public companies not having such a committee should consider establishing one. While there is no general requirement for nonpublic companies or nonprofit organizations to have audit committees, many of them can also benefit from establishing one. In the absence of a committee, organizations can profit by identifying directors, or others not part of management, who can conduct oversight of financial reporting and auditing activity. In April 1988, the ASB issued SAS No. 61, Communication with Audit Committees, which established a requirement for the auditor to determine that certain matters related to the audit are communicated to those responsible for oversight of the financial reporting process.
Audit committees offer important advantages to all organizations.
The success of the oversight function, however, will depend on the resourcefulness and dedication of committee members and others responsible for this function, and the support and cooperation of the board and of management. When forming a committee, factors such as applicable state laws, provisions of the company's corporate charter and its practice for establishing committees should be considered. Most committees are established either by a resolution of the board of directors or by an amendment to the bylaws. Other factors to consider include the committee's duties and responsibilities, the number of members, and the length of time, members may serve. The committee should be large enough to represent a balance of views and experience, yet small enough to operate efficiently.