Both the NYSE and the NASDAQ requirements for audit committee charters mention internal accounting controls. What exactly are these, and how can the audit committee oversee them?
Basically, internal accounting controls are the systems in a company that help to ensure accurate financial reporting, internally and externally. There are many competing definitions of internal controls, but the one that is the most relevant to public companies today is the definition advanced under Sarbanes-Oxley Section 404. The SEC’s final rules define “internal control over financial reporting” as follows: A process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and
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