Response to the following problem:
The U.S. national stock exchanges require listed companies to have an independent audit committee.
Required:
a. Describe an audit committee.
b. What does it mean for the audit committee members to be "independent"?
c. What are the typical functions performed by an audit committee?
d. Explain how an audit committee can help an auditor be more independent.
e. Describe the nature of the audit firm's communications with the audit committee regarding independence issues.
f. Some critics of audit committees believe that they bias companies in favor of larger and perhaps more expensive CPA firms. These critics contend that a primary concern of audit committee members is to reduce their exposure to legal liability. The committees will therefore recommend larger, more prestigious CPA firms, even if the cost is somewhat higher, to minimize the potential criticism of selecting an unqualified firm. Evaluate these comments.