PwC_Audit Committee Effectiveness Executive Summary

7/27/2019 PwC_Audit Committee Effectiveness Executive Summary

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Executive Summary


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Executive Summary |

The global capital markets rely heavilyon the quality o nancial statements.The economic crisis that started in 2008increased the ocus on both the role othe audit committee and the inormationcompanies disclose. The audit com-mittees role in ensuring accurate andtransparent disclosure is more importanttoday than it has ever been. Clearly, the

job is also more dicult and challenging

than ever given increased expectationsby shareholders, regulators, and otherstakeholders; heightened scrutiny whenthings go wrong; more responsibility orrisk management; and more ocus onthe need or raud prevention.

The bottom line is that people expectmore rom audit committees today,and this publication provides insightinto audit committee leading practicesthat can help committees meet thoseexpectations.

What the chapters cover

1. Financial Reporting and Disclosures

Financial reporting disclosure require-ments have been steadily increasing ora number o years, in tandem with thecomplexity o accounting standards.Regulators and nancial statement userscontinue to press companies or more

inormation and to get that inormationsooner. This environment makes theaudit committees responsibility to over-see the companys nancial reportingmore dicult. The committee must beaware o the nancial reporting risks toocus its attention appropriately. And itcannot lose sight o the need to maintainits skepticism. This chapter highlights

ways the committee can best understand

and monitor the companys nancialreporting.

2. Risk Management and the Systemof Internal Control

Given how many risks known andunknown a company aces, its a chal-lenge or a board or audit committeeto get comortable that the company isaddressing risk appropriately. One o thediculties acing the audit committee is

clearly dening its risk responsibility relative to that o the entire board. While thecompanys system o internal control isdesigned to help mitigate risk, the auditcommittee ocuses particularly on con-trols relating to nancial reporting, raudand compliance. This chapter helps thecommittee to better understand the risksthat most likely all within its scope andhow to monitor whether the companyis addressing those risks appropriately.

Interview insights

Our industry is

currently su-

ering rom

signicant

government

and regulatory

intererence.

Accordingly,

many compa-

nies and auditcommittees are

ocusing on rules

and compliance.

We need to be

more balanced

and reocus our

attention back

on the business.

AC Chair


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3. Culture and Compliance The Soul of Corporate Accountability

The companys culture and code oconduct are critical actors in creatingan environment that encourages com-pliance with laws and regulations. Theaudit committee must recognize howcritical the right tone at the top o thecompany is and ensure what its hearingin the boardroom is what employees arehearing throughout the company. Thischapter provides insights that help thecommittee understand what elementscompliance programs should have topromote proper conduct and behaviorthroughout the company.

4. Oversight of Management andInternal Audit

The audit committee needs to overseemanagement while taking care not to step

into managements role. Establishing aneective relationship with managementis essential it allows the committeeto eectively monitor the companysnancial reporting practices and evaluatemanagements competence. Similarly,the committee relies heavily on internalaudit to provide an objective view on howthe company is handling a number o keyrisks, including those relating to nancialreporting and compliance. This chapter

discusses how the committee builds eec-tive relationships with both managementand internal audit.

5. Relationship with External Auditors

The audit committee has to select theright external auditors to conduct a qual-ity audit. As part o executing their auditplan, the external auditors provide theaudit committee with assurance regard-ing the companys nancial reporting.

Additionally, external auditors are in aunique position to provide unlteredand unbiased eedback to the committeeabout management and the companysprocesses. This chapter guides the com-mittee through the ways to evaluate andappoint auditors and to develop andmaximize the value o external auditrelationships.

6. What to Do When Things Go Wrong Financial Statement Errors andFraud Investigations

At times, breakdowns in nancial report-

ing processes lead to potential errors inpreviously issued nancial statements.Management and the audit committeehave to assess whether an error is mate-rial and, i it is, take steps to resolvethe situation. The situation can becomemore complex i the error results romraud. The committee also might have tobecome involved when allegations ariseo bribery or other orms o raud. Insuch cases, the committee may have to

oversee an investigation. This chapterdiscusses actors or the committee whenit must consider a possible restatementor oversee an investigation.


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7. Committee Composition

Composition and leadership are criti-cal in supporting the audit committeesability to carry out its responsibilitieseectively. The committee needs theright combination o skills and experi-ence. It also needs a chair with theknowledge and commitment to drive thecommittees work. This chapter discussesconsiderations or selecting committee

members and the chair and or determin-ing how large the committee should be.

8. Meetings

To ensure committee meetings run well,the committee needs to have the rightagenda and receive the right materialsbeorehand. The attendees, and howthey interact with committee members,also infuence the success o meetings.Given how many responsibilities the

committee has, it needs to ensure it ismeeting oten enough and at the rightpoints during the year. This chapterdescribes ways the committee can cre-ate an eective meeting environment,allowing the members to engage inmeaningul discussion and make themost o private sessions.

9. Supporting Committee Effectiveness Charter, Evaluations, Resources,and Training

The charter documents the audit commit-tees purpose, roles, and responsibilities.It helps distinguish the committeesresponsibilities rom those o the ullboard o directors. An audit committeethat periodically evaluates its peror-mance will be able to identiy ways to

improve its eectiveness. Orientationtraining or new members and ongoingdevelopment or all members are essen-tial, particularly given the velocity ochanges to nancial reporting and gover-nance standards. This chapter discussesconsiderations or the committees char-ter, methods the committee can use toassess its perormance, and ways to meetits training objectives.

Documents

PwC_Audit Committee Effectiveness Executive Summary