Audit committee effectiveness checklist.

The oversight responsibilities of audit committees established by company boards of directors have become increasingly important in recent years. The National Commission on Fraudulent Financial Reporting (the Treadway commission) focused attention on the role of the audit committee in overseeing the financial reporting process, and the Securities and Exchange Commission and the New York Stock Exchange have issued general guidelines for audit committees.

A law--the first of its kind- setting requirements for certain audit committees was passed in 1991. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires banking institutions with assets of over $150 million to have audit committees made up entirely of outside directors independent of management. Also, the audit committee must include members with banking or related financial experience.

Following are questions designed to help rate audit committee effectiveness.

1. Is the audit committee composed entirely of outside directors with no management connections?

2. Has the board of directors defined in writing the audit committee's objectives, range of authority, duties and responsibilities?

3. Do audit committee meetings involve management, internal auditors and independent auditors?

4. Does the audit committee also meet privately and separately with these parties during the year?

5. Does the audit committee meet with independent auditors before an audit to determine the scope of and the approach to the upcoming audit?

6. Does the audit committee make itself available for consultation with the auditors during the audit?

7. Does the audit committee understand and review the functions of the internal audit department?

8. In carrying out oversight responsibilities, does the audit committee discuss the company's internal control structure over financial reporting with management, including the roles of internal and independent auditors?

9. Does the audit committee discuss the company's risk management program with management, making certain that financial reporting is appropriate?

10. Is the audit committee prepared to assess the impact of a possible move to market value accounting, as called for in Financial Accounting Standards Board Statement no. 107, Disclosures About Fair Value of Financial Instruments, on the company's financial statements?

11. Is the audit committee aware of the growing influence of international accounting standards and their importance in securing access to international capital markets?

12. Does the audit committee submit an annual written report to the board of directors, with a review and recommendations for the company's internal control structure over financial reporting, the internal audit system and the independent auditors?