financial expert

A term defined by the Sarbanes-Oxley legislation that was passed in 2003, which requires that least one member of the audit committees of boards of directors is a financial expert. Although the law issues guidelines for what a financial expert is, it is up to each board of directors to make a determination using five key qualities outlined in the law. A financial expert must: 1) understand Generally Accepted Accounting Principles (GAAP) and financial statements; 2) be experienced in preparing or auditing financial statements of comparable companies; 3) have experience accounting for estimates, accruals, and reserves; 4) understand internal accounting controls; and 5) understand the functions of an audit committee.