Looking ahead: The audit committee agenda in 2024

Regulatory matters

Among the various inputs audit committees receive, those coming from regulators are among the most numerous and often the most important. This is likely to be the case in 2024, when initiatives from the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and the Financial Accounting Standards Board (FASB) will need to be considered.

Since the appointment of Gary Gensler as SEC chair in 2021, the SEC has been among the most active in recent memory, from the perspectives of both rulemaking and enforcement, and there is no indication that activity in these areas is likely to slow down in 2024. Accordingly, audit committees need to pay close attention to the SEC in 2024.

Similarly, we can expect activity from the PCAOB in 2024. Audit committees are a key stakeholder in the financial reporting process and play an important role in audit quality. As part of the audit committee’s oversight of the external auditor, the audit committee can engage with the external auditor regarding PCAOB activities. In November 2023, the PCAOB updated its standard-setting agenda following “record setting action in 2023,” noting that it took more formal actions on standard-setting and rulemaking this year than it has in any of the previous 10 years.

The FASB issued three Accounting Standard Updates (ASUs) to close out 2023. The three ASUs included improvements to segment disclosure, income tax disclosure, and accounting and disclosure for crypto. If they haven’t already, audit committees should meet with management to learn how each of these new requirements will impact their organizations and understand implementation plans and timelines.

Risk

Despite the ongoing addition of new responsibilities, audit committees remain responsible for oversight of other areas of their companies. Perhaps the most significant of these responsibilities is risk. While the audit committee is not responsible for direct oversight of all risks, it is generally responsible for overseeing how other board committees and management monitor, evaluate, and manage risk.

As part of this broad oversight of risk, the audit committee needs to consider how to refresh and reinforce its role in risk oversight. In particular, so-called enterprise risk management, or ERM, programs have been in place at many companies for decades. Given the seemingly ever-expanding number and seriousness of risks, audit committees can consider whether a “refresh” of the ERM program or any of its key components is necessary.

Any discussion of risk in 2024 will almost certainly include the risks associated with the growing use of artificial intelligence, or AI. In addition, cybersecurity remains a major component of risk and one that companies of all shapes and sizes are facing daily.

Finance talent

Even with the growing use of artificial intelligence, the human factor remains an area of critical importance to audit committees; do their companies have the right talent? If not, is it possible to bring on new talent, or is the “war for talent” overwhelming? And is existing talent—including those in finance and internal audit—being used effectively? Audit committee discussions should include a focus on current talent and succession planning for the future.

Audit committee effectiveness

Audit committee effectiveness is an important consideration for members as their oversight responsibilities continue to expand. As a result, audit committees should consider more robust self-evaluations and efforts to continuously improve, from making pre-reads more effective, to enhancing the quality of communications with management and the external auditors.

A key factor in making audit committees more effective is the chair. Leading the committee through the process of addressing existing responsibilities and facing new ones is a daunting task. Thus, selection of the “best” audit committee chair is yet another challenge faced by audit committees and the boards of directors of which they are a part.

Conclusion

Audit committees have long been referred to as the “kitchen sink” of the board, in that anything that is not clearly within the jurisdiction of the full board or another committee often ends up on the audit committee agenda. However, we see audit committees and their chairs continuing to rise to the challenges they face, as they have for so many years. Staying on top of topics such as those suggested above will help them continue to do so.