THE AUDIT COMMITTEE HANDBOOK, 3RD ED.

By Louis Braiotta, Jr.

John Wiley & Sons, Inc., $60, 446 pp, plus appendices

Reviewed by Vincent J. Love, CPA, chair, NYSSCPA Auditing Standards and Procedures Committee

The third edition of Professor Braiotta's Audit Committee Handbook could not have been timelier. The SEC's recent adoption of new rules relating to the functioning of the audit committee, and the emphasis the major stock exchanges are giving to enfranchising and improving this vital board committee, make this handbook relevant and useful for all CPAs.

The greatest benefit is that the handbook gathers in one place the myriad writings, rules, regulations, and guidance pertinent to service on an audit committee. The handbook is no easy read, but it is just what it purports to be--a suitable reference for anyone serving on an audit committee. Whatever one wants to know about the organization, function, responsibility, liability, and reporting of an audit committee can be found in the handbook.

The handbook also covers the basics of accounting, auditing, and reporting, including ample references to the professional and other literature. One appendix lists accounting and auditing subjects with a reference to the governing professional literature. However, the handbook is not an accounting text--its value lies in the guidance it gives to companies, their boards of directors, and, more specifically, their audit committee members.

The first section of the handbook addresses the responsibility of the audit committee, its size and membership, its functions, and its role in the internal and external audit process. Particularly noteworthy is a chart of the audit committee's accountability relationship. The handbook includes many such charts and checklists that will be extremely useful to committee members in understanding and effectively executing their duties and responsibilities. These charts and checklists also assist the external auditor in counseling committee members and assessing the internal control environment.

The handbook relies heavily on references to standards and quotes from various organizations, committees, and distinguished professionals. Chapter 4 addresses the legal responsibility of the directors and references the now all-too-familiar cases involving corporate fraud and mismanagement. To assist the audit committee member, Braiotta includes a table of warning signals of the possible existence of fraudulent financial reporting and a checklist of how to minimize the audit committee's legal liability.

The second section covers the planning aspects of a properly functioning audit committee. It includes subjects such as the director's role in audit planning, developing an integrated planning approach, pre- and postaudit planning, and recommending the appointment of the independent auditor. The third section is devoted to the monitoring and review functions of the audit committee. This section addresses topics related to the company's system of internal control, the internal audit function, accounting policy disclosures, fraud and the auditor, and general business practices, such as questionable foreign payments and corporate perquisites.

The fourth and final section covers information and guidance on the external auditor's report and the audit committee's report. The chapter discusses types of audit opinions given, reporting on interim financial statements, and special reports. With the new SEC requirements, the last chapter in the handbook on audit directors' reports assumes great importance, with guidance on preparing the audit committee's report to the full board, the sources of information for the report, and report preparation. The author concludes with observations on anticipated future expansion of the duties and responsibilities of the audit committee.

Completing the handbook are more than 100 pages of appendices, including an excellent glossary and excerpts of the standards, regulations, and rules relevant to audit committees.

More corporations will be appointing financial professionals to their boards of directors to serve on their audit committees in response to the new changes mandated by the SEC. With this latest edition of an always-useful book, which I highly recommend as a worthwhile addition to any professional library, the standard by which all audit committees are judged has taken a sharp upward turn. *

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