Tag Archives: audit committees

SEC Chief Accountant addresses audit committee effectiveness

by Cydney Posner

In a recent speech at the University of Tennessee, “Advancing the Role and Effectiveness of Audit Committees,” SEC Chief Accountant Wes Bricker discusses his recommendations for — wait for it — improving the effectiveness of audit committees.  The speech addresses issues such as diversity, work overload, tone at the top, staying current, implementing new GAAP standards, internal control over financial reporting, non-GAAP measures, external auditor oversight and enhanced audit committee reporting. Continue reading

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Audit committee oversight of the new revenue recognition standard: Center for Audit Quality comes to the rescue

by Cydney Posner

As discussed in this PubCo post, the SEC’s Office of the Chief Accountant has continued to beat the drums to encourage companies and their audit committees to hunker down and address the impending effectiveness in 2018 of the new revenue recognition standard, particularly with respect to assessment and implementation of the new standard and transition disclosures necessary to help investors assess the impact of the new standard.  For some companies, the undertaking can be enormously challenging, which may explain why the SEC’s encouragement appears to be necessary. A 2016 PwC survey showed that 22% of respondents had not even started the assessment, 65% were in the assessment phase and only 13% were in the implementation phase. And for those in the assessment phase, 59% were not that far along — barely halfway or less.  With regard to disclosures, according to the WSJ, only 15 companies in the S&P 100 have included transition disclosures in their most recent quarterly reports. Continue reading

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SEC Chair and staff presentations at AICPA National Conference

by Cydney Posner

SEC Chair Mary Jo White and a cast of thousands from the SEC’s Office of the Chief Accountant delivered remarks yesterday before the 2015 AICPA National Conference on Current SEC and PCAOB Developments. Summarized below are some of the key themes of their speeches: Continue reading

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PCAOB publishes new “Audit Committee Dialogue”

by Cydney Posner

The PCAOB has announced the publication of a new paper designed to address audit committees.  The paper, Audit Committee Dialogue, provides insights from inspections of public company auditors that should assist audit committee members in overseeing their auditors. Other similar papers are anticipated. This paper highlights two areas: key recurring areas of concern that the PCAOB has identified and new risks that the PCAOB is monitoring. Especially helpful are the series of suggested questions related to each topic that committee members may want to ask their auditors.

RECURRING CONCERNS

In its inspections, the PCAOB has found frequent significant deficiencies in the following areas:

  • Auditing internal control over financial reporting (ICFR) (39%)
  • Assessing and responding to risks of material misstatement (26%)
  • Auditing accounting estimates (13%), including fair value measurements (11%)
  • In cross-border audits, deficient “referred” work — work performed by other audit firms and used by the signing audit firm

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Agenda overload for audit committees?

by Cydney Posner

In its 2015 Global Audit Committee Survey, KPMG found that audit committee members around the world had four key concerns: “economic and political uncertainty and volatility, regulation and the impact of public policy initiatives, operational risk, and cybersecurity.”  Another growing concern, though, was agenda overload.  According to a statement from the Executive Director of KPMG’s Audit Committee Institute in a KPMG press release, the “resounding message is that the audit committee can’t do it all…. Overseeing financial reporting and audit is a major undertaking in itself, and the risk environment is clearly straining many audit committee agendas today.”

Approximately 1500 audit committee members responded to the KPMG survey, of whom 62% were on committees at public companies. Of those responding, 24% said that the time required to fulfill their responsibilities has increased significantly and 51% saw a moderate increase; 40% (33% in the U.S.) thought it was “increasingly difficult” for the audit committee to have the time and expertise to oversee  — in addition to its regular oversight responsibilities — the major risks on its agenda, and 8% (4% in the U.S.) were convinced that they did not have the time and expertise. And while some may quibble about the extent of the burden of the time commitment — 43% of audit committee members globally (27% in the U.S.) reported that they devoted 50 or fewer hours annually to carrying out their audit committee responsibilities, while 21% spent 100 hours (27% in the U.S.) and 10% said that they spent more than 300 hours (5% in the U.S.) – there is no question that, for many audit committee members, expertise regarding financial reporting does not translate comfortably into expertise regarding cybersecurity or technology risks, areas of oversight responsibility that are often now within the purview of audit committees. In response to a question regarding the prevalence of in-depth expertise on their audit committees, only 27% of respondents indicated that there was expertise regarding technology; beyond the requisite financial expertise, the highest level of expertise was in risk/risk management, which topped out at 61%, meaning that 39% of respondents believed that no one on their committees had risk management expertise.  Continue reading

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Four questions audit committees should ask their audit firms

by Cydney Posner

Audit Committee members may be interested in this release issued by the PCAOB in August 2012 designed “to assist audit committees in (1) understanding the PCAOB’s inspections of their audit firms and (2) gathering useful information from their audit firms about those inspections.” The PCAOB regularly performs inspections of registered audit firms, large and small, as well as a selection of the audits they have conducted.  The PCAOB issues two-part inspection reports that describe, for each firm inspected, in Part I, audit deficiencies identified by the PCAOB inspection staff, and, in Part II, deficiencies in the firm’s overall system of quality control. The PCAOB makes Part I of the reports publicly available on its website, but is prohibited from publicly releasing Part II (unless the firm fails to remediate identified deficiencies within 12 months of issuance of the applicable report). However, the audit firms themselves have the entire report and may release it if they so choose.

As highlighted by some of the panelists at the PLI Securities Regulation Institute, the release suggests that audit committee members may benefit from learning more about some of these inspection reports and, in particular, identifies four possible questions that audit committee members should consider asking their audit firms about their inspection reports: Continue reading

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