Report Details How Independent Auditors & Regulators View Role of Audit Committee Members on Corporate Boards
NEW YORK, March 25, 2019 /PRNewswire/ -- Today, The Conference Board's Governance Center released a report detailing independent auditors' and regulators' perspectives on the role of the corporate director. They weighed in, specifically, about the role of the board's audit committee – a group of individuals with whom they most directly work. The insights featured in the report are primarily from a recent roundtable discussion featuring audit partners from leading accounting firms, federal regulators, and others. Douglas Chia, the Executive Director of The Conference Board's Governance Center, and Sharad Jain, a Partner with PwC's Governance Insights Center, moderated the roundtable.
Insights from the report include but are not limited to:
- Beyond financial acumen, an audit committee member must have strong communications skills. In addition to expected financial literacy, independent auditors and regulators believe the ideal audit committee member should possess strong communications skills. This is because of their ongoing engagement with various stakeholders, which includes shareholders who want to know what steps they are taking to mitigate risks and oversee value creation. Moreover, they believe audit committees will increasingly need directors with an understanding of issues in the sustainability realm, given its growing importance with shareholders.
- No clear consensus: the definition of an Audit Committee "Financial Expert." Implemented in 2002, the Sarbanes-Oxley Act and the subsequent SEC rules call for companies to disclose whether its board of directors has at least one audit committee "financial expert." What constitutes a "financial expert" remains up for debate. Some who participated in The Conference Board's recent roundtable believe the definition is too broad, given that it allows for the CEO to be deemed a financial expert through mere association with the CFO. Others feel the definition should not be functionally limited to CPAs and CFOs, who by nature are financial experts. Re-examining the definition could include creating a standard that specifies the person's required knowledge and responsibilities.
- Striking the right tone at the top. Independent auditors and regulators who participated in the roundtable stressed the importance of the ethical atmosphere that is created in the workplace by the organization's leadership. They defined it as the culture and level of vigilance of those at the top of an organization. Ensuring the appropriate tone at the top is a substantial part of the audit committee's oversight function. Setting the appropriate tone includes the board emphasizing to management during normal times what matters most to the company.
- Robust and transparent disclosure is the optimal way for directors to engage with shareholders. Shareholders are looking for both evidence that the audit committee understands its role and the committee's depiction of how it is fulfilling it. The roundtable's participants agreed that the audit committee report in the proxy statement is the proper place to communicate this information.
"The independent auditors and regulators play such critical roles for giving the markets confidence in the integrity of corporate financial disclosures and protecting the interests of investors, so their perspectives on the job of corporate directors are especially important to understand," said Douglas Chia, Executive Director of the Governance Center. "The auditors are usually the only people in the boardroom other than the directors and management, so they have a direct line of sight into how boards perform that others cannot get."
"When we asked independent auditors and regulators to address the job description of a corporate director, they thought it best to look at the position through the lens of the audit committee," said Gary Larkin, author of the report and a Research Associate at The Conference Board. "They are most aware of that committee's machinations and responsibilities, which include monitoring the company's system of internal controls and complying with laws and regulations."
The report marks the ninth of several reports from the Governance Center that feature insights from boardroom stakeholders about the role and expectations of the corporate director. In addition to highlights from conversations with regulators and independent auditors, the report includes a hypothetical corporate director's job description from their point of view; discussions of audit quality; whether boards should retain outside expertise; the ideal composition of the audit committee; and, data on board composition as it relates to demographics.
Media can e-mail Joseph DiBlasi at The Conference Board ([email protected]) for a copy of the report. Learn more about The Conference Board's Governance Center here.
About The Conference Board's Governance Center
The Conference Board's Governance Center draws upon authoritative research from The Conference Board. Our mission is to work in the public interest to provide knowledge and thought leadership on global corporate governance issues for boards and c-suite leaders, investors, and other leading organizations.
About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org.
SOURCE The Conference Board
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