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From The AICPA Audit Committee Toolkit.
Copyright © 2005 by the American Institute of Certified Public Accountants,
Inc., New York, New York.
| Purpose of This Tool. The following information illustrates how the audit committee might approach assuring it has access to requisite financial expertise. |
Audit Committee Financial Expertise
The following attributes are all deemed to be essential components of financial
expertise:
- An understanding of generally accepted accounting principles (GAAP),
generally accepted auditing standards (GAAS), and financial statements.
- The ability to assess the general application of such principles and
standards in connection with the accounting for estimates, accruals, and reserves.
- Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that can reasonably be expected to be raised by the organization’s financial
statements, or experience actively supervising (that is, direct involvement
with) one or more persons engaged in such activities.
- An understanding of internal controls and procedures for financial
reporting.
- An understanding of audit committee functions.
- A general understanding of nonprofit financial issues and specific
knowledge of the not-for-profit sector (for example, health care or education)
in which the organization participates.
The following questions should be used to assess whether an individual audit
committee member, or the committee as a whole, possesses the above attributes.
- Have one or more individuals completed a program of learning in accounting
or auditing?
- Do one or more individuals have experience as a chief or principal
financial officer (for example, finance director or business manager), principal
accounting officer, controller, public accountant, or auditor?
- Do one or more individuals have experience in position(s) that involve
the performance of similar functions?
- Have one or more individuals gained experience by actively supervising
a person(s) performing one or more of these functions?
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Do one or more individuals have experience overseeing or assessing the performance
of companies, not-for-profit organizations, or public accountants with respect
to the preparation, auditing, or evaluation of financial statements?
- Do one or more individuals have other relevant financial experience
(for example, service on boards of banking or investment institutions or experience
as a banker, investment adviser)?
- Do one or more individuals have experience serving on audit committees
of other not-for-profit organizations?
Alternative Approaches
If no individual member of the audit committee possesses the attributes required
for financial expertise, and the committee members collectively do not possess
such attributes, several options might be considered:
- Establish a relationship with a peer or otherwise comparable organization
to have the chief financial officer for one organization provide financial
expertise to the other. Such arrangements can be reciprocal or involve multiple
organizations.
- Establish an outsource relationship in which a financial professional
is engaged and compensated to provide financial expertise as a consultant to
the audit committee. Such an individual must otherwise be independent with
respect to the organization (that is, must have no other financial arrangements
with the organization).
- Pursue a training program for audit committee members to develop the
financial expertise. Such training can include participation in professional
development programs offered by the AICPA, associations serving the not-for-profit
industry, or the specific sector in which the organization participates, or
the conduct of in-house training programs.
Resources
Various organizations provide information to support audit committees in carrying out their responsibilities. In addition to this toolkit, the AICPA maintains an Audit Committee Effectiveness Center. Independent Sector has devoted significant attention to issues related to financial expertise, as have sector organizations such as the National Association of College and University Business Officers. Many public accounting firms provide information on these subjects as well. Finally, although its provisions are not directly applicable to not-for-profit organizations, the SEC Rule on Audit Committee Financial Experts contains information that may be of interest. See the tool, Resources for Audit Committees in this toolkit.
From The
AICPA Audit Committee Toolkit. Copyright ©
2005 by the American Institute of Certified Public Accountants, Inc., New
York, New York.
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