As those of you who serve on audit committees know, setting an effective and strategically sound audit committee agenda is no easy task. For one thing, a lot is already on the agenda and there are certain things audit committees are required to do according to the company’s exchange listing standards and other legal requirements. So aside from the things the committee is obligated to do, is there anything else it should consider?
In addition, understanding significant risks can be difficult because of the complex and evolving nature of the global business environment in which the company operates. With this in mind, we share our guidance for setting your 2014 audit committee agenda, as detailed in our latest issue of The Bulletin. This agenda is based on our interactions with client audit committees, roundtables we have conducted, and discussions with directors at conferences and other forums.
Enterprise, Process and Technology Risk Issues:
1. Update the company’s risk profile to reflect changing conditions – Given the constantly changing environment, the audit committee should take a close look at the company’s risk profile at least annually. Expect management to provide the committee an updated assessment.
2. Oversee the capabilities of the finance organization and internal audit – These capabilities must be aligned with the company’s changing needs, both internal and external. Make sure finance and internal audit are sufficiently resourced to meet these needs so they can carry out their responsibilities.
3. Contribute to board oversight of the five lines of defense – Watch for the warning signs that the tone of the organization, risk management function, internal control and escalation processes are not functioning effectively.
4. Understand how new technological developments and trends are impacting the company – Understand the implications of technological innovations to security and privacy, financial reporting processes, and the viability of the company’s business model.
Financial Reporting Issues:
5. Continue to enhance the external auditor’s communications with the audit committee – Manage the external auditor relationship so that the company receives value for its audit fees through enhanced communications from the audit process and inquire whether PCAOB inspections are having an impact on the audit approach.
6. Pay attention to the PCAOB initiative to expand the auditor’s report – Watch developments on the new auditing standard and related amendments that are intended to enhance the auditor’s reporting model.
7. Understand the impact of COSO’s 2013 update of the Internal Control – Integrated Framework – Understand the effect of the update on the company’s internal control reporting, internal audit activities and other affected areas.
8. Provide oversight on efforts to comply with new reporting requirements – Inquire about the impact of new accounting standards (e.g., revenue recognition and accounting for leases in the United States) and the status of the company’s due diligence with respect to the conflict minerals disclosure, if applicable.
I will continue to discuss these topics in future blogs and other pieces. As always, I welcome your questions and comments on these views. What are shaping up to be the priorities and issues for your company this year?