Glossary

An audit is a professional, independent examination of a company's financial statements and accounting documents following generally accepted accounting principles (GAAP).

An IRS audit, in contrast, is an examination of a taxpayer's return, usually to question the accuracy or acceptability of the information the return reports.

The corporate audit committee is the liaison between the company's management, the board of directors, internal and external auditors, and any other accounting experts advising the company on audit issues.

In particular, the audit committee is responsible for hiring and managing external auditors. Since 2002, when Congress passed the Sarbanes-Oxley Act, implementing stringent financial oversight regulations, the role of the audit committee has become increasingly important.

An audit committee is composed of a subgroups from the corporation's board of directors. Members of the audit committee must be independent, which means they have no ties to the company's management team.

In general, they cannot receive any compensation, such as consulting or advisory fees, except for a board of director's fee. They may not be able to own shares in the company or be affiliated in any other way with the company. Nor can they be affiliated with or have an interest in the external auditing company.