FERF/EY Survey Reveals how Companies are Structuring Their Disclosure Committees
MORRISTOWN, N.J., Nov. 21, 2014 /PRNewswire/ -- Financial Executives Research Foundation (FERF), the independent, non-profit research affiliate of Financial Executives International (FEI), today released the findings of a joint study with EY entitled, "Unlocking the Potential of Disclosure Committees." As disclosure committees become a customary feature of corporate governance, companies are continually looking for ways to improve their effectiveness and relevance in response to increasing investor and regulatory demands for more effective disclosure practices.
The study surveyed senior finance executives at more than 100 companies representing more than 30 industries. It examined why companies have disclosure committees, how they are positioned in the organization, who are their members and in what ways they are used to drive efficiency, effectiveness and accountability. In addition, the report provides views and insights from experts and disclosure committee members who provided further perspectives on the findings.
"Our survey report presents a broad range of experiences and findings among disclosure committees – a roster of successes, but also identifying areas for correction," said Marie Hollein, President and CEO of Financial Executives International and Financial Executives Research Foundation. "These findings should prove helpful to companies that have a disclosure committee or a similar function, and to those who are still thinking about forming one, to better understand best practices for optimizing the committee's operation."
"Disclosure committees have played a pivotal role in corporate reporting since SOX was enacted—not only do they underpin the critical chief executive officer (CEO) and chief financial officer (CFO) certifications process and provide comfort to the board, they can also be a powerful tool to maximize disclosure effectiveness," said Neri Bukspan, Partner with Ernst & Young LLP and EY Americas Disclosure leader. "Our report shares leading practices and provides a roadmap for companies seeking to bolster their reporting oversight process."
Key findings from the survey include:
- Organization of the disclosure committee: Sixty percent of the respondents' committees report directly to the CFO, compared with 45 percent of respondents who named the CEO as their direct report. Many said that solid reporting lines to both the CFO and CEO is the most effective structure, as they are both responsible for certifications – and almost 30 percent of the respondents' committees are using that structure. Indeed, when the reporting line is only to the CFO, the CEO risks not being fully informed because communication from the disclosure committee through the CFO might be "screened."
- Frequency of meetings: Disclosure committees surveyed normally meet four or more times a year. Not one of the committees among the 87 respondents met fewer than four times a year. Of the 78 public companies that responded, 43 percent, said they held more than four meetings a year.
- Topics of discussion: Almost all of the 97 respondents, 96 percent of disclosure committees surveyed said that they regularly address financial statements, MD&A and similar financial disclosures when they assemble. Other frequent topics include quarterly earnings, cited by 73 percent, and the effectiveness of internal controls, 42 percent. Respondents were allowed to select as many topics as applied.
- Audit committee: Forty-three percent of the 91 respondents indicated that the disclosure committee has no formal interaction with the audit committee, whereas 29 percent said that disclosure committee members summarize that committee's process in reports they send to the audit committee. One fifth of the respondents indicated that they report their disclosure decisions, or share a summary, with the audit committee.
- Committee effectiveness: Forty-five percent of disclosure committees surveyed said that their disclosure committee is effective, without qualification. Another 37 percent agreed that their committee is effective, but noted that it serves solely to address regulatory SEC and accounting requirements such, as approval of 10-K and related certifications. Another 18 percent, while also saying that their committee is effective, suggested that its operations could be enhanced in some key areas.
About this survey
The study is available online at Financial Executives Research Foundation's bookstore.
About Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals, and publications can be ordered by logging onto www.ferf.org.
About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.
SOURCE Financial Executives Research Foundation, Inc.
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