Chief accountant Wesley Bricker also backs increased board diversity
Diversity and balanced workloads are key features to ensure audit committees are able to fulfill their duties, according to SEC chief accountant Wesley Bricker.
In remarks to the University of Tennessee’s C Warren Neel Corporate Governance Center last week, Bricker highlighted what he called audit committees’ critical role in contributing to financial statement credibility. They do this through their oversight and resulting impact on the integrity of a company’s culture and internal control over financial reporting (ICFR), the quality of financial reporting, and the quality of audits performed on behalf of investors, he said, adding: ‘The importance of the audit committees’ work cannot be overstated.’
Part of ensuring audit committee effectiveness for producing high-quality financial reporting is keeping a close eye on their capacity, Bricker told attendees. ‘Balancing audit committee workload is especially critical given the need for audit committees to stay current on emerging issues, whether financial, ICFR or disclosure-related through continuing education and other means,’ he said.
Bricker pointed to recent surveys as indicating that some audit committees are finding it difficult to perform their core responsibilities while covering other major risks on their agendas, with many saying their workload is not manageable. ‘This emphasizes the importance of the role of the board in driving the audit committee’s focus and responsibilities,’ he said. ‘Board directors should ask themselves whether they are identifying the risk of audit committee overload and, if so, [whether they are] appropriately managing this risk to enable the audit committee to operate effectively.’
Although audit committees may be equipped to play a role in overseeing risks outside of financial reporting, such as cyber-security and aspects of enterprise risk management, it is important they do not lose focus on their core roles and responsibilities, he added.
The workload can be managed at least in part through consideration of the scope of the audit committee charter, agendas, education and advisers. ‘It is worth noting that listing standards required as a result of the Sarbanes-Oxley Act provide an audit committee with explicit authority to obtain advice and assistance from outside legal, accounting or other advisers as the audit committee deems necessary or appropriate to carry out its duties,’ Bricker said.
‘Audit committee members must help each other test their judgment and instincts in landing on the important issues,’ he told the audience. ‘Factors that lead to greater audit committee effectiveness include group dynamics, training, information reporting and focus on substantive issues.’
The chief accountant also noted the recent ‘appropriately strong interest and focus of investors on diversity of thoughts within the board of directors.’ Investors are pressing for greater attention to be placed on board composition.
‘Diversity of thoughts diminishes the extent of group thinking, and diversity of relevant skills… enhances the audit committee’s ability to monitor financial reporting,’ he said. ‘Academic research tells us that boards with diverse members allocate more effort to monitoring, have better financial reporting quality and are more likely to hold management accountable after poor performance.’