Sarbanes Oxley requires at least one member of the audit committee to be a financial expert. Even NYSE and other stock exchanges require an audit committee to have a financial expert. According to the Securities and Exchange Commission SEC, a financial expert has expertise in -

1. Generally Accepted Accounting Principles GAAP
2. Audit Procedures
3. Internal Controls

One recent survey revealed that companies are increasingly finding it difficult to find the financial expert for their audit committees. Not every board of director is a former auditor, banker, or financial expert. As I see it, companies have two options available in hiring financial experts for their audit commmittees. The first option is to recruit another director who qualifies as a financial expert. This is easier said than done, many a times companies have to compromise since they are trying to find a specifc person with specific skill sets.

The second option is to hire an outside consultant to advise the audit committee. Sarbanes Oxley authorizes companies to hire financial experts in carrying out its functions. The benefits of hiring a financial expert are that an expert can be chosen purely on the basis of his financial expertise. Board may defer the advise of the financial expert. As a precautionary measure companies should ensure that financial expert has professional liability insurance which will cover any costs or damages which the company may incurr due to wrong advise from the financial expert.

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