AUDIT COMMITTEES NEED TO BECOME MORE ACTIVE, EXPAND SCOPE
Audit committees need to become more active and expand their scope of oversight to remain effective guardians of quality financial reporting in the new economy, agreed leading corporate executives at "The Audit Committee Symposium: A Balanced Responsibility." This event was held June 30 in New York City and co-sponsored by Arthur Andersen and the Financial Executives Institute (FEI).
About 150 audit committee members, corporate board members, senior executives, auditors, government regulators and academic leaders considered the changing roles and responsibilities of audit committees at the symposium. Panelists included Roderick M. Hine, former SEC chair; John B. Morse, Jr., CFO of the Washington Post Company; Howard J. Johnson, chair of the Institute of Internal Auditors and director of auditing at J.C. Penney Company, Inc.; and William T. Allen, director of the NYU Center for Law and Business and chair of the Independence Standards Board. SEC Chair Arthur Levitt, Jr., gave the keynote address.
The symposium was organized in part as a response to the recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. The blue ribbon panel's proposals, as described in the August CPA Journal, were designed to strengthen the independence and qualifications of audit committee members, improve audit committee effectiveness, and enhance accountability in the financial reporting process.
Symposium participants were given the opportunity to cast ballots on key questions following panel discussions of four central issues.
* Overseeing Internal Control Processes--More Than Just the "Tone at the Top."
Some 86% of participants said audit committees have a role to play in overseeing internal control and risk management processes, and 80% believe closer oversight would help avoid financial reporting disasters. But participants were less certain about implementation: Only 28% favored mandated oversight, and 49% were uncertain what appropriate steps needed to be taken.
* Quality Financial Reporting Is More Than Just Acceptability.
Participants overwhelmingly supported discussing the quality of a company's financial statements, and few (five percent) saw a risk that these discussions would usurp the responsibilities of management and auditors or that they would result in passing the buck on tough issues (seven percent). A majority--68%--said a better definition of "quality" is needed. However, two-thirds disagreed with the idea that audit committees should ask for a written report of their discussions about quality with the auditors.
* Audit Committee Expectations of Management, Internal and External Auditors, and Legal Counsel.
More than three-quarters of respondents agreed that audit committees must demand more of the professionals who serve them, but responses were more mixed on specific proposals. For instance, 76% do not believe audit committees should see every recommendation relating to financial reporting that internal and external auditors present to management. But more than half (56%) favored letting audit committees interview and screen candidates for key financial reporting positions. Moreover, 98% agreed that audit committees should assess the performance of professionals and suggest ways to improve. Only 36% reported that this kind of assessment occurs today.
* Legal Liability Issues Implicit in These Changes.
Some 75% of all participants expressed concern that the Blue Ribbon Committee's recommendations, if enacted, could increase audit committee legal liability. A safe harbor provision was seen as necessary by 92% of participants. Legal experts debated the issue of liability and disagreed on whether it might increase or decrease. Although the group expressed some concern that liability issues are shrinking the pool of qualified audit committee candidates, 69% still believe that companies will be able to recruit qualified members while 58% believed compensation will need to be increased. *
The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.
©2009 The New York State Society of CPAs. Legal Notices
Visit the new cpajournal.com.