FOR AUDIT COMMITTEE MEMBERS ONLY

Join fellow Audit Committee members in a closed-door, candid discussion of the most critical issues facing Audit Committee members, especially given the current fluidity of the regulatory environment . This invitation-only, complimentary session will be hosted by KPMG and cover topics including SEC, FASB and other regulatory developments and uncertainties, impacts of recent legislation in areas such as tax and Dodd-Frank, managing risk, ethics & compliance and implementing major accounting changes. Attendees are encouraged to raise issues from their own experience as Audit Committee members.

DISCUSSION SUMMARY AND KEY TAKEAWAYS

HERE'S WHAT YOU MAY HAVE MISSED

On December 11^th, KPMG and its New Jersey managing partner Corey Temple hosted NACD members for a robust Audit Committee Roundtable Exchange.  The Exchange was moderated by KPMG partner Mark Thomas. 

The first topic discussed was Culture, along with the Audit Committee’s role in the oversight of and understanding of the organization’s culture.  Attendees agreed that the ‘tone at the top’ often sets the culture throughout the organization.  The importance of looking first at the CEO was suggested -  how he/she behaves, and what values they exhibit:  the implication is the employees will follow suit.  Attendees all agreed that the tone at the top is critical.     

Discussion took place as to how can audit committee and other board members more fully understand the culture of the company.  Some have engaged outside firms to study the culture and report back to the audit committee on its findings.  Some others have also conducted employee surveys to assess the company culture.  One suggestion was to take a look at ‘Glass Door’ for anecdotal input, particularly for lower level employees.  It was agreed that board members should meet with employees below the C Suite, through presentations to the board, board and management dinners, at reviews of the company’s operations, and other avenues.  

It was noted that large and complex companies may have different cultures within its various areas of operation.  Several attendees felt that employees don’t have faith in the whistle blower process to raise concerns; but the whistle blower concept is vital to role of audit committees.  One suggested way to ‘fix it’ is to set up reporting to an outside autonomous entity. 

The second topic revolved around Critical Audit Matters.  Beginning in June 2019 the audit opinion of public companies will be expanded to include Critical Audit Matters (CAMs).  It was acknowledged that no audit opinion would be without a CAM in the future.  Audit Committee members have always been aware of the CAMs, but now the public will also be aware.  There was some question as to whether this will have any influence on investors. 

The participants also spent some time discussing Cybersecurity.  It was acknowledged that the Chief Technology Officer (CTO) or Chief Security Officer (CISO) should report either to the Audit Committee or Risk Committee, if one exists, at every committee meeting.  Committee and other board members need to stay educated on technology, as technology crosses all sectors and is so prevalent throughout every enterprise.  It is important for boards to have members with technology expertise, though the rest of the board shouldn’t bring on a member with deep technology knowledge in order to defer technology discussions and decisions to one individual.  

The participants discussed the importance of the internal audit team to the Committee’s role.  Some participants indicated that the internal audit function was focused more on compliance and less on financial auditing, while other participants found internal audit groups that had two teams:  one focused on compliance and another team focused on operational auditing.  There was some discussion on how the internal audit group works with the external audit firm.  Internal audit should relay its annual plan to the Committee and the Committee should provide input to the plan. 

When the topic of succession planning came up, most agreed that the role of succession planning lay more with  the compensation committee than audit committee.  However, all agreed that the audit committee should have a handle on CFO succession planning. 

In response to questions about risk and board committees, one participant indicated that although the Risk committee is responsible for overall risk oversight, different types of risk are delegated to the specific committees responsible for that aspect of risk.  It is important for the boards lead director to work with Chief Risk Officer to make sure all risk areas are covered by some board committee.  One participant reminded the attendees that in highly regulated industries, companies need a strong government affairs area of operation to monitor all regulations and potential regulations, and convey these items to the board on a regular basis. 

The roundtable discussion ended with some conversation around implementation of the latest accounting standards.  The participants acknowledged the importance of understanding the implications of new lease and revenue recognition pronouncements.  The implementation of these pronouncements has been a big drain on companies’ finance departments.  The next ‘big’ accounting area of focus will be assessing credit risk, which will be implemented in 2020.