Public company audit committee members might be forgiven for sweating potential Securities and Exchange Commission (SEC) scrutiny of late. In the last three years, the commission has given renewed attention to audit, accounting, and financial reporting misconduct, more than doubling the number of enforcement actions in that space.1 At the same time, the commission has emphasized that it intends to hold individuals, particularly “gatekeepers,” accountable for such misconduct.2 In the SEC’s eyes, audit committee members fall squarely into the gatekeeper category, as recent speeches and enforcement actions have made clear.
Yet directors should not avoid audit committee service simply because the SEC might scrutinize their work. Enforcement actions against audit committee chairs are an “infrequent” occurrence,3 according to SEC Chair Mary Jo White, who also noted in a speech in March, that “judgments that directors make in good faith based on responsibly performing their duties will not be second guessed” by the commission.4 With that in mind, we examine the SEC’s focus on audit committee members as gatekeepers, review three recent enforcement actions to highlight conduct that attracts the staff’s attention to audit committee members, and suggest certain safeguards that might help audit committee members mitigate the chance of an SEC investigation or charge.
