Corporate Governance – the Role of the Audit Committee
Corporate Governance – The Role of the Audit Committee
Deborah L. Lindberg, D.B.A. Associate Professor Department of Accounting Illinois State University
April 2004
Direct all correspondence to: Deborah L. Lindberg, Illinois State University, College of Business, Department of Accounting, Campus Box 5520, Normal, IL, USA 61790-5520; Telephone: (309) 438-7166; Fax: (309) 438-8431; E-mail: lindberg@ilstu.edu. The Katie School of Insurance & Financial Services at Illinois State University, whose support is gratefully acknowledged, funded this research. The author is also grateful for work performed by Illinois State University Research Assistants Drew Olson and Yan Zheng.
Corporate Governance – The Role of the Audit Committee
ABSTRACT: The provisions of the Sarbanes-Oxley Act have far-reaching ramifications for insurance companies and the organizations they insure (Stein 2003). A direct cost to many insurance companies due to poor corporate governance practices was that they suffered devastating losses to their investment portfolios, since some of the largest institutional investors are insurers (Larkin & Casscles 2003). Another significant cost to insurance companies as a result of fraudulent activities, insider trading, and other instances of corporate malfeasance is the likely increase in payouts by insurers on Directors & Officers (D & O) and Errors & Omissions (E & O) liability insurance policies (Larkin & Casscles 2003; Zacharias 2002). The Sarbanes-Oxley Act attempts to improve the accountability of corporations and to strengthen the role of “corporate governance.” While the Act’s new rules govern companies that are publicly traded, non-public companies should also attempt to comply with the provisions of the Sarbanes-Oxley Act to help establish “best practices” for their organizations. The Audit Committee of the Board of Directors provides one very significant aspect of corporate governance, since an Audit Committee can be effective not only in
Deborah L. Lindberg, D.B.A. Associate Professor Department of Accounting Illinois State University
April 2004
Direct all correspondence to: Deborah L. Lindberg, Illinois State University, College of Business, Department of Accounting, Campus Box 5520, Normal, IL, USA 61790-5520; Telephone: (309) 438-7166; Fax: (309) 438-8431; E-mail: lindberg@ilstu.edu. The Katie School of Insurance & Financial Services at Illinois State University, whose support is gratefully acknowledged, funded this research. The author is also grateful for work performed by Illinois State University Research Assistants Drew Olson and Yan Zheng.
Corporate Governance – The Role of the Audit Committee
ABSTRACT: The provisions of the Sarbanes-Oxley Act have far-reaching ramifications for insurance companies and the organizations they insure (Stein 2003). A direct cost to many insurance companies due to poor corporate governance practices was that they suffered devastating losses to their investment portfolios, since some of the largest institutional investors are insurers (Larkin & Casscles 2003). Another significant cost to insurance companies as a result of fraudulent activities, insider trading, and other instances of corporate malfeasance is the likely increase in payouts by insurers on Directors & Officers (D & O) and Errors & Omissions (E & O) liability insurance policies (Larkin & Casscles 2003; Zacharias 2002). The Sarbanes-Oxley Act attempts to improve the accountability of corporations and to strengthen the role of “corporate governance.” While the Act’s new rules govern companies that are publicly traded, non-public companies should also attempt to comply with the provisions of the Sarbanes-Oxley Act to help establish “best practices” for their organizations. The Audit Committee of the Board of Directors provides one very significant aspect of corporate governance, since an Audit Committee can be effective not only in
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