Warren Buffett - the Four Questions the Audit Committee should ask

"The key job of the audit committee is simply to get the auditors to divulge what they know ... to do this the committee must make sure that the auditors worry more about misleading its members than about offending management.

In recent years auditors have not felt this way. They have instead generally viewed the CEO, rather than the shareholders or directors, as their client. That has been a natural result of day-to-day working relationships and also of the auditors' understanding that, no matter what the book says, the CEO and CFO pay their fees and determine whether they are retained for both auditing and other work.

What will break this cozy relationship is audit committees unequivocally putting auditors on the spot, making them understand they will become liable for major monetary penalties if they don't come forth with what they know or suspect.

Audit committees can accomplish this goal by asking four questions of auditors, the answers to which should be recorded and reported to shareholders ... READ MORE

When auditors are put on the spot, they will do their duty. If they are not put on the spot ... well, we have seen the results of that."

The Essays of Warren Buffett: Lessons for Corporate America
Released by Lawrence A. Cunningham