Page 62 - Encyclopedia of Business and Finance

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Audit Committees

assurance on the financial or nonfinancial measures used Trading partner accountability. The CPA provides assur-
to evaluate the effectiveness or efficiency of the organi- ance that the client’s trading partners—such as suppliers,
zation’s activities. While CPAs have historically been customers, or joint venture partners—have appropriately
involved in the development of financial statement infor- fulfilled their responsibilities. Common situations involve
mation, their skills and knowledge can add similar value collecting rents or royalties based on sales made by
to the creation of other information that can monitor the another entity or agreements regarding use of lowest
organization’s results and its effectiveness in implement- prices or specific billing practices.
ing strategic plans.
Mergers and acquisitions. The CPA applies the types of
Electronic commerce. As more business is conducted services done on a client’s records and practices to a poten-
electronically (via the Internet or in business-to-business tial acquisition. He or she can, for example, provide
electronic data interchange systems) participants have insights into the acquisition target’s business risks, appro-
concerns about the integrity and security of data transmit- priateness of accounting methods, the value of its assets,
ted in furtherance of those transactions. An assurance or the adequacy of its systems and controls.
service can help to address the risks and promote the SEE ALSO Auditing
integrity and security of electronic transmissions, elec-
tronic documents, and the supporting systems. One such
service, CPA WebTrust, provides explicit assurance about BIBLIOGRAPHY
Elliott, Robert K., and Pallais, Don M. (1997). “Are You Ready
the disclosure of an entity’s business policies and about the
For New Assurance Services?” Journal of Accountancy June:
controls over privacy and information integrity in con- 47-51.
sumer purchases over the Internet.
Pallais, Don M., Spradling, L. Scott, and Ecklund, Kathy J.
(2004). Guide to Nontraditional Engagements. Fort Worth,
Systems reliability. As information technology advances, TX: Practitioners Publishing Company
it becomes increasingly common for critical information
to be produced and acted on electronically. Accordingly,
Don M. Pallais
decision makers need confidence that the information is
continuously reliable. There is an increased need for assur-
ance that systems are designed and operated to produce
reliable data in such areas as information about customers,
suppliers, and employees, project costing, rights and obli- ATTESTATION
gations related to contractual agreements, and competi- ENGAGEMENTS
tors and market conditions. In systems reliability SEE Assurance Services
engagements, CPAs provide assurance about the design
and operation of such systems.

Elder care services. The CPA assists the increasing popu- AUDIT COMMITTEES
lation of older adults with a wide range of services such as Audit committees are a key institution in the context of
bill paying, providing assurance that health care providers corporate governance. They ensure that boards of direc-
are delivering services in conformity with the client’s cri- tors fulfill their financial and fiduciary responsibilities to
teria, and consulting on care alternatives and how to pay shareholders. Through their audit committees, boards of
for them. The CPA provides independent, objective infor- directors establish a direct line of communication with
mation to protect vulnerable clients from potentially internal and external auditors as well as with the chief
unethical individuals and businesses as well as more tradi- financial officer of the entity. Such an organizational
tional services (such as financial control) for nontradi- structure combined with reporting responsibility in an
tional clients. environment of free and unrestricted access enables full
boards of directors not only to gain assurance about the
Policy compliance. The CPA provides assurance that a quality of financial reporting and audit processes, but also
company complies with its own policies. The policies— to approve significant accounting policy decisions. More-
such as ones involving treatment of women or minorities, over, strong and effective audit committees, through their
conflicts of interest, animal testing, environmental mat- planning, reviewing, and monitoring activities, can recog-
ters, or customer service—might be based on internal nize potential problem areas and take corrective action
concerns, calls for social accountability, or laws and regu- before problems that affect companies’ financial state-
lations. ments and other financial disclosures arise. Thus, audit

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 39