Final answer:
The audit committee of a public company under Section 301 of the Sarbanes-Oxley Act is responsible for overseeing the engagement of external auditors to ensure their independence and integrity in financial reporting to protect investors and restore confidence following major accounting scandals.
Step-by-step explanation:
Under Section 301 of the Sarbanes-Oxley Act, the audit committee of a public company is mandated to maintain direct responsibility over the engagement of the company’s external auditors, ensuring that the auditors are independent of the company’s management. This section was designed to strengthen corporate governance and restore investor confidence in the wake of accounting scandals such as those involving Enron and WorldCom.
The audit committee’s duties include pre-approval of all auditing and non-auditing services provided by the auditors, establishing procedures for the treatment of complaints regarding accounting or auditing matters, and the confidential, anonymous submission by employees of concerns pertaining to questionable accounting or auditing matters.
The act emerged as a response to the corporate scandals that highlighted the need for stronger oversight in financial reporting. It places significant accountability on the audit committee as part of the board of directors, underscoring its role as a key component of corporate governance. The act recognizes the audit committee as integral in ensuring the integrity of financial information, which is vital for protecting investors from the risk of accounting fraud.