The Pressure on Audit Committees in an Ever-Changing Regulatory Environment

Litigation attorneys John Grugan and Matthew Catron and corporate attorney Emily Hantverk co-authored an article for the American Bar Association's (ABA) Business Law Today magazine on the evolution of independent audit committees and their increasingly complex task of maintaining sound corporate governance and ensuring regulatory compliance. The U.S. Securities and Exchange Commission (SEC) approved standards requiring audit committees in 1999, and their obligations under both state and federal regulatory regimes have only grown since. The authors detail several SEC enforcement actions that underscore the vital role audit committees play for public companies as gatekeepers for investor protection, highlighting that this approach has transcended administrations and will likely continue under current SEC Chairman Paul Atkins. They trace requirements imposed by regulators and listing standards, such as membership criteria from the NYSE and Nasdaq, and describe increased pressure as a result of heightened scrutiny and tighter regulations: shifting Public Company Accounting Oversight Board (PCAOB) standards, new SEC rules and additional duties under Delaware law. The article provides an in-depth overview of the regulatory landscape audit committees face today and potential liability risk areas to manage.

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