Under the Sarbanes-Oxley Act, which group must be independent from management?

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

Answer: (B)

Independence in oversight of financial reporting is essential. The Sarbanes-Oxley Act requires that the audit committee be made up of independent directors. This independence lets the committee objectively oversee the external auditor, approve audit fees, and monitor the company’s internal controls and audit quality without management influence. By keeping the audit committee free from management, the organization reduces conflicts of interest and strengthens the credibility of the financial statements. Internal auditors, while they should act with objectivity, do not have the same explicit independence requirement from management under the act, and shareholders are owners rather than a governance body tasked with independent oversight. The key point is that the group required to be independent from management for these duties is the audit committee.