a. You met with Go-Go’s audit committee, which consists of the corporate controller, treasurer, financial vice president, and budget director. PROBLEM: Section 301 of the Sarbanes-Oxley Act of 2002 (SOX) applies to publicly held companies and their auditors. It requires audit committee members to be on the company’s board of directors and to be independent of the company. That is not the case at Go-Go Corporation. SOLUTION: All members of the audit committee should be members of the Board of Directors. They must also be independent of the company – meaning none of the audit committee can be employees. The audit committee is responsible for overseeing the corporation’s internal control structure, its financial reporting process, and its compliance with related laws, regulations, and standards. The committee works closely with the corporation’s external and internal auditors. SOX requires audit committees to be responsible for hiring, compensating, and overseeing the auditors and for auditors to report all critical accounting policies and practices to the audit committee. b. You recognized the treasurer as a former aide to Ernie Eggers, who was convicted of fraud several years ago. PROBLEM: Because the position of corporate treasurer involves managing cash and other financial assets, it is critical that the position be filled with someone of unquestioned commitment to integrity and ethical values. This question presents somewhat of a dilemma. Here are the two sides of that dilemma. On the one hand, just because the treasurer worked for someone that turned out to be dishonest does NOT mean the treasurer is dishonest as well. Everyone should be judged on his or her own merits, not those of someone else. Therefore, you need to be careful not to assume automatically that the treasurer is dishonest. On the other hand, the fact that the treasurer has been an aide to someone convicted of fraud should raise questions in your mind. You should approach all audits with the requisite skeptical attitude. That skeptical attitude should be heightened due to his past associations.
