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Analyzing the Responsibility of the Audit Committee

Analyzing the Responsibility of the Audit Committee

The role of directors and committees in financial reporting and accounting oversight continues to evolve as a result of Sarbanes-Oxley and new rules and regulations. Based upon Lorsch and Simpson's Harvard Business Case article "The Role of the Audit Committee in Risk Oversight," what are the range of risks an audit committee can and should be responsible for? How have they changed since the establishment of Sarbanes-Oxley?

The response should reflect the application of the Resources presented.

Lorsch, J. & Simpson, K. (2009). The role of the audit committee in risk oversight, Harvard Business Case.

This case looks at the regulatory demands on audit committees, the risks and the responsibilities, and the laws and regulations that affect the roles of audit committees.

Sheehan, N. J. (2010). A risk-based approach to strategy execution. Journal of Business Strategy, 31(5), 25-37.

The Role of the Audit Committee in Risk Oversight
By Jay W. Lorsch and Kaitlyn A. Simpson

A risk-based approach to strategy execution
By orman T. Sheehan

Solution Preview


Being a member of the audit committee used to be a cushy job. No longer. The stakes are much higher given the new regulatory environment and rash of scandals. And audit committee members are trying to figure out what their duties entail. In my view, they should oversee risk management but not be the sole risk management group in the firm.


The view of the role of the audit committee has dramatically changed since Sarbanes Oxley Act of 2002 (SOX). Prior to that, regulatory bodies tried to get the audit committees to adopt a risk-management agenda, with mixed success. SOX, however, significantly increased the audit committee's importance and duties in overseeing the business. This resulted in some confusion about how much bigger their job is now and exactly which risks should the audit committee oversee.

Let's start with how SOX changed the audit committee. First, the auditors used to be hired and fired by management. SOX changed that. After SOX, the audit committee was required to hire and supervise the external auditors. In some cases they also have responsibility for the internal audit team as well (but this was not regulated). This was a big change to their responsibilities. Also, the audit committee was required to have at least one "financial expert" or explain to the SEC why it didn't need a financial expert. This means that not only were the responsibilities ...

Solution Summary

Your tutorial is 882 words and two references. The discussion claims that the audit committee should be responsible for ensuring that business risks are identified and communicated but they should not be the only group with responsibility for business risks.