The Audit Committee’s Role Regarding the Provisions of The Foreign Corrupt Practices Act

Abstract

The Foreign Corrupt Practices Act (FCPA) of 1977, as amended in 1988, prohibits individuals and corporations from using bribes and kickbacks to enhance foreign commerce. Imposing stiff penalties for noncompliance, the FCPA includes internal control and accounting and recordkeeping provisions. Several studies show that corporate codes of conduct and other formal ethical policies help assure compliance with ethical policies, including the provision of the FCPA. Congress, the Securities and Exchange Commission (SEC), the courts, the American Institute of Certified Public Accountants (A/CPA), and many other financial statement users and preparers have endorsed the audit committee concept as a means to oversee the audit function and otherwise strengthen the financial reporting process. As such, audit committees should ascertain the effectiveness of the entity's internal control structure and compliance with the provisions of the FCPA. After highlighting the provisions of the FCPA, this study examines the extent of the audit committees' involvement in corporate compliance with the FCPA-focusing on corporate codes of conduct-based on a study of 152 audit committees whose securities are traded on the New York Stock Exchange (NYSE). Recommendations for strengthening the committees' and companies' roles in this area are also presented.