Our Bank is looking to add a Financial Expert to the Audit Committee. Here are the SEC requirements I have found for designating a Director to this position.

In order to qualify as an "audit committee financial expert," the person must have all of the following five attributes:

• An understanding of generally accepted accounting principles ("GAAP") and financial statements;

• The ability to assess the general application of GAAP in connection with the accounting for estimates, accruals and reserves;

• Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the company's financial statements, or experience actively supervising one or more persons engaged in such activities;

• An understanding of internal controls and procedures for financial reporting; and

• An understanding of audit committee functions.


The final rules require a person to have acquired these attributes through any one or more of the following:

• Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor, or experience that involves the performance of similar functions;

• Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;

• Experience overseeing or assessing the performance of companies or public accountants with respect to preparation, auditing or evaluation of financial statements; or

• Other relevant experience.


Does anyone here know the following:

1) How to officially validate the Director's Financial Expert Status?

2) Are there any heightened liability concerns for a Director with a Financial Expert Status?

3) Would there be a need to increase Director and Officer Liability coverage?

I appreciate any thoughts and comments back.

In response to your questions (from SEC-compliance perspective):

1) Qualification as a financial expert is determined by the board using their judgment and their interpretation of the requirements set forth by their respective exchange. For example, NYSE requires each audit committee member to be financially literate; and the financial expert must have accounting or related financial management expertise. NASDAQ requires the financial expert to have “past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.”

2) SOX has a safe harbor provision so that a financial expert is not held to a higher degree of care or legal responsibility than other audit committee members. (Otherwise, people would be very reluctant to sign-up for the financial expert gig)

3) It depends. You may want to confer with your insurance agent and legal counsel on this matter.

Is your bank already a publicly-traded institution? If not, then you may want to also focus on the FDIC's audit committee and financial expert requirements set forth in Part 363 (see link below).

http://www.fdic.gov/regulations/laws/rules/2000-8500.html#2000part363.5

Dazed and Confused:

Thanks for your feedback on the Audit Committee Financial Expert. We are a public bank on NASDAQ and follow there guidelines per above.

Ask for their resume

Starter brings up a good point. Get his/her curriculum vitae. You would definitely need it for the SEC filings that require you to disclose professional background information on the audit committee members.