As a result of increasing accounting and auditing fraud, the SEC has stated that the current supervision of independent accountants is not adequate. The SEC proposed a broad series of rules that are designed to reform oversight and improve the accountability of auditors of publicly traded companies. In January 2003, the Sarbanes-Oxley Act implemented a final rule to Section 407 that require reporting companies to disclose in their annual reports whether there is at least one audit committee financial expert on their audit committee. This four-page white paper explores this rule concerning director and auditor independence.

1. An understanding of generally accepted accounting principles and financial statements
2. An ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
3. Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the issuer’s financial statements, or experience actively supervising one or more persons engaged in such activities;
4. An understanding of internal controls and procedures for financial reporting; and
5. An understanding of audit committee functions.

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