Under the Sarbanes-Oxley Act, which body must contain members that are 100% independent of management?

• A. Board of directors
• B. Audit committee
• C. Internal auditors
• D. Board of supervisors

Answer: (B)

Independence in overseeing financial reporting is the key issue here. Sarbanes-Oxley requires the audit committee to be made up entirely of independent directors who have no management ties. This separation ensures the committee can objectively supervise the financial reporting process, internal controls, and the external auditor without any management influence. Internal auditors are important for objectivity, but they are internal employees and their independence is not the same requirement as the audit committee’s. The board of directors has governance responsibilities, but the specific independence mandate that SOX emphasizes is for the audit committee. The option related to a board of supervisors isn’t a standard element of U.S. public-company governance under SOX.