Which of the following is one of the four recommendations made by the National Commission on Fraudulent Financial Reporting the Treadway Commission to reduce the probability of fraud in financial reports?
A.
Have a mandatory independent compensation committee.
B.
Develop a written charter for management.
C.
Have adequate audit committee resources and authority.
The Corporate Governance chapter explains that the Treadway Commission made four recommendations aimed at reducing the likelihood of fraud in financial reporting. These recommendations were directed to the board of directors’ audit committee and included having an independent audit committee, a written charter for the audit committee, adequate resources and authority, and informed, vigilant, and effective audit committee members. The manual specifically states that the existence of an audit committee and a written charter is not enough; the committee must also have adequate resources and authority to carry out its responsibilities. That language directly matches option C. The other choices either substitute the wrong committee, assign the charter to management instead of the audit committee, or improperly shift oversight of internal controls to shareholders.
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