Corporate audit committees;

              CORPORATE AUDIT
COMMITTEES
William C. Norby, executive director of
the Financial Analysts Federation (seated),
reviews corporate audit committee material
with Donald J. Bevis, partner in the Touche
Ross Executive Office. The results of a
study of corporate audit committees by
professors R.K. Mautz and L.F. Newmann
of the University of Illinois have been pub­lished
by the University 's Bureau of Eco­nomic
and Business Research in a hard cov­er
book, and are also the subject of a film
and monograph at Touche Ross. The study
was sponsored by the Touche Ross Foun­dation.
In a statement stressing the need for cor­porate
audit committees, Mr. Norby said,
"This survey of corporate practice in re­gard
to Directors Audit Committees is a
timely and valuable study. We at The Fi­nancial
Analysts Federation congratulate
the Touche Ross Foundation on their gen­erosity
and perception in financing the
study.
"Investors naturally look to the directors
to select management and to continuously
appraise its policies and performance. That
is their primary responsibility. The increas­ing
size and complexity of modern corpora­tions
requires a more independent and criti­cal
review of management performance
than has been customary in the past. The
Directors Audit Committee undoubtedly
will grow in importance in coming years to
help directors meet that challenge.
"The independent public accountant is
an important link in the audit and appraisal
of management control of the financial re­sources
of the firm. Direct access to the
Directors Audit Committee strengthens the
auditor's independence of management.
This should be reassuring to investors.
"The organization of the Audit Commit­tee
is only the first step, however. Auditors
and directors must both learn to ask search­ing
questions and to speak frankly if the
committee is to be fully effective as a
check and balance on management.
"In addition to the functions described
in the book, I would recommend that the
Audit Committee review the financial state­ments
of the company with regard to the
application of accounting principles and
their fairness from the viewpoint of the in­vestor.
I believe the independent auditor
would be strengthened in the application of
accounting principles which are most ap­propriate
to the circumstances, regardless
of their short term effects on the financial
results.
"The debacle of the Penn Central is a
forceful reminder that directors need to ap­ply
continuous, independent, and critical
appraisal of management. The independent
auditor, reporting to directors through the
Audit Committee, can be an important re­source
in the discharge of that responsi­bility."