• Audit committees should make sure audit reports are followed up on effectively and in a timely way. Moody's recommends that executives' pay be docked if they take too long to respond to an audit evaluation that is critical of their department.

• Companies should keep their internal audit function in-house. While acknowledging that using third-party audit professionals can have its benefits, such as ensuring the auditors' independence within the organization, Moody's believes doing so brings up too many corporate-governance issues: outsourced auditors do not have enough access to the audit committee, they have less stature within the company to do their job effectively, and their work may be cut back because of budget constraints since they are paid on an hourly basis, Moody's says.

In addition, outsourced auditors will likely miss connecting the dots between the many issues and risks that can pop up at a company, according to Richards. Internal auditors who actually work inside the company day-to-day are more aware of the inner-workings and see the interrelationships between processes and departments, therefore strengthening an organization's risk-management strategy, he says.

• Audit committees should agree on the audit function's role with regard to Sarbanes-Oxley's Section 404. Audit teams, warns Moody's, should not be so entrenched in 404 that they are not concentrating on their traditional duties, and they should not play a role in designing controls or becoming part of the control process.

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