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The Board of Directors and Audit Committee Guide to Fiduciary Responsibilities by Ronald Kral, Sheila Moran

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CHAPTER FOUR

Direct the External Audit

OVERSEEING THE EXTERNAL audit relationship, from hiring to firing, is one of the fundamental responsibilities of audit committees. The effort expended by audit committee members in this matter can play a crucial role in reducing the possibility of material misstatements. Material misstatements lead to restatements of financial statements, which often trigger class action lawsuits. For example, New Century Financial Corp. allegedly made false and misleading statements and omissions concerning its operations and financial results. Upon the company’s disclosure in 2007 that the U.S. attorney’s office was conducting a criminal inquiry and investigating accounting issues, New Century’s stock price collapsed. ...

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