Trumpeter Corporation Is a Small Publicly Traded Company That Specializes

question 34

Essay

Trumpeter Corporation is a small publicly traded company that specializes in the restoration and sale of fine musical instruments. The audit committee is made up of a CEO from a technology company, a college accounting professor, and a local marketing executive. All are sufficiently independent from management. Members of the audit committee meet three times a year. Each time they meet, a different member, who chooses the topics to discuss, leads the meeting. The audit committee then sends the minutes of its meetings to the entity's CFO. Solely from this information, what are your conclusions about this audit committee's role within the control environment?

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Definitions:

Signaling Theory

A concept in economics and finance that suggests that decisions made by companies can convey information to investors and the market about the firm's future prospects.

Dividend Irrelevance

Dividend Irrelevance theory suggests that a company's dividend policy has no effect on either its value or its cost of capital, according to Modigliani and Miller.

Growth Created Value

The increase in value that a company achieves through the expansion of its operations or activities.

Future

Financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price.