Resources for Sarbanes-Oxley (SOX)

The Credit Crisis And The Audit Committee

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On December 15, 2006, Lehman Brothers and Bear Stearns reported profits of $4.05 billion and $2.08 billion, respectively, for the fiscal year ended November 30, 2006. Other Wall Street firms reported similar financial successes. The tremendous performance of these Wall Street firms was attributed to fixed-income credit products, such as mortgage-backed securities, asset-backed securities, and credit derivatives. Now, less than two years later, Lehman Brothers is in bankruptcy and the federal government bailed out Bear Stearns and it was sold. The collapse of these venerable Wall Street firms was in large part the result of investments in risky securities and trading practices. The collective failure of these and other financial titans begs the question: could more have been done to prevent these failures? The high-profile corporate scandals of the early 2000s placed more responsibility on the audit committee. These scandals led to legislative and regulatory developments designed to expand the audit committee's role and responsibilities, including passage of the Sarbanes-Oxley Act of 2002, related SEC rulemaking, and the New York Stock Exchange and NASDAQ Stock Market corporate-governance listing standards. The changes strengthened audit committee's composition and authority, increased audit committee responsibilities and enhanced the audit committee's monitoring role. The result was a shift in the audit committee's responsibilities from a largely monitoring role to a more proactive oversight role.

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