Describe the nature of the audit firm’s communications with the audit committee regarding independence issues.

The U.S. national stock exchanges require listed companies to have an
independent audit committee.
a. Describe an audit committee.
b. What does it mean for the audit committee members to be “independent”?
c. What are the typical functions performed by an audit committee?
d. Explain how an audit committee can help an auditor be more independent.
e. Describe the nature of the audit firm’s communications with the audit committee
regarding independence issues.
f. Some critics of audit committees believe that they bias companies in favor of larger
and perhaps more expensive CPA firms. These critics contend that a primary con-
cern of audit committee members is to reduce their exposure to legal liability. The
committees will therefore recommend larger, more prestigious CPA firms, even if the
cost is somewhat higher, to minimize the potential criticism of selecting an unquali-
fied firm. Evaluate these comments.

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