Six things for audit committees to keep in mind as they consider and carry out their 2016 agendas.
Drawing on insights from surveys and interactions with audit committees and business leaders over the past 12 months, the Audit Committee Institute has highlighted six items for audit committees to keep in mind as they consider and carry out their 2016 agendas:
1) Maintain (or regain) control of the committee’s agenda: this number-one item from last year holds true for 2016. In ACI’s 2015 Global Audit Committee Survey, nearly half of the 1,500 audit committee members who responded said it is “increasingly difficult” to oversee the major risks on the audit committee’s agenda in addition to its core responsibilities (financial reporting and related internal controls, and oversight of internal and external auditors).
2) Quality financial reporting starts with the CFO and finance organization; maintaining a sharp focus on leadership, succession planning, and bench strength is critical: in ACI’s global survey, 42 percent of respondents said their audit committee is “not effective” in CFO succession planning. Given the rate of CFO turnover and the critical role the CFO plays in maintaining financial reporting quality, it is essential that the company have succession plans in place not only for the CFO, but for other key finance executives, including the controller, chief accountant, chief audit executive, and treasurer, and perhaps the chief compliance and chief risk officers.
3) Monitor fair value estimates, impairments, and judgments impacting key assumptions underlying other critical accounting estimates: these issues, together with loss contingencies, pension funding shortfalls, going-concern challenges, significant and unusual transactions, and financial relationships and transactions with executive officers should continue to be a major area of focus for the audit committee.
4) Assess the company’s readiness for the new revenue recognition standard from the IASB and FASB, and for new country-by-country tax reporting: the IASB and FASB have deferred the effective date of the new revenue standard by one year—until January 1, 2018 for calendar-year end public companies. The new standard, which will change the way many companies recognize revenue from customer contracts, will have a significant impact across the company—from business terms, conditions, and contracting processes to systems, data, and accounting processes.
5) Reinforce audit quality and set clear expectations for the external auditor: audit quality is enhanced by a fully engaged audit committee. Set the tone and clear expectations for the external auditor, and monitor auditor performance through communications and a robust performance assessment.
6) Consider how the company’s disclosures can better tell the company’s story—and the audit committee’s: Think about going beyond what’s required to provide a fuller picture not only of the company’s recent performance, but also where it’s headed and the key risks it faces.