Audit Committee Membership Recommendations

So as to completely comply with SOX standards, an audit committee ought to be established in line with distinct membership needs. Members on the audit committee are drawn from the nonprofit’s board of directors. These independent directors (that have no economic interest inside the corporation) may well be eligible to serve on the nonprofit’s audit committee if they meet the needs discussed beneath

Independence is essential

To make sure that audit committees are fair and objective advocates for powerful audit procedures, SOX calls for audit committee members to become financially

independent from the corporation in two respects:

1. Compensation: A committee member may well not get any variety of compensation or fee from the organization aside from payment for serving on the board of directors on the nonprofit. On the other hand, audit committee members is often paid for giving accounting, consulting, legal, investment, banking, or economic advisory services for the nonprofit or for operating for corporations that present these services.
2. Affiliation: A member cannot be affiliated together with the corporation by way of household or employment relationships. However, SOX Section 302 does not clearly define the term “affiliated individual.” It merely states that if you are affiliated, you are prohibited from serving on an audit committee. On the other hand, the legislative background of SOX and past practices on the SEC make it doable to ascertain who might be deemed an affiliated individual and therefore ineligible to serve on your company’s audit committee. 

As an example, the definition on the term “affiliated person” that is applied in most other sections of securities laws applies to SOX at the same time. Underneath this definition, a director is deemed to become an affiliated individual if he or she features a direct or indirect influence more than the management on the company’s small business or affairs aside from solely by virtue of getting a director.

Figure within a economic specialist

At the least one particular individual on a company’s audit committee need to be a economic specialist. Commonly, someone is usually a economic specialist if he or she has, by way of education and knowledge, an understanding of Commonly Accepted Accounting Principles (GAAP), economic statements, and internal accounting controls. The SEC does not look at former CEOs to become economic authorities for corporations that happen to be essential to comply with SOX.