On the audit committee's agenda has been saved
On the audit committee's agenda
Top of mind topics for audit committee members
A series of periodic audit committee-focused publications that examines topics impacting the audit committee’s responsibilities and priorities
The strategic audit committee: Navigating 2021
It’s been said a lot: 2020 was a difficult year. The effects of the COVID-19 pandemic have led to unprecedented economic conditions and continued uncertainty in the business environment. This has resulted in increased complexities and risks that may have long-term implications. Seemingly overnight, employees began working virtually, and boards and audit committees had to find new ways to engage with management and their auditors in order to effectively execute their oversight responsibilities.
As companies continue dealing with the impact of the pandemic, the audit committee’s agenda and its processes will need to remain flexible to address issues and challenges as they arise. To provide effective oversight and help management navigate these challenging times, audit committees need to ask direct, targeted questions to understand management’s processes and decisions, as well as alternatives that were considered when addressing key issues.
We’ve been operating in this environment for three quarters and have learned much. Audit committees will continue to face an expanding agenda, and prioritization will be critical. While the role of the audit committee is vast, this publication focuses on two areas of oversight that may be critical for audit committees in the upcoming year: financial reporting and internal controls, and risk. Our focus is on providing a set of topics and additional resources for audit committees to consider as they manage their 2021 activities.
Year-end accounting and financial reporting considerations: Questions for audit committees to consider
The current business and economic landscape is unprecedented. With little to no warning, companies have had to adjust to a variety of challenges, including supply chain disruptions, government-mandated shutdowns, implications of the CARES Act, working remotely, and more. While companies have managed through these challenges for the past several months, this year-end close may be like no other as those issues continue to evolve and new challenges arise. This continued uncertainty in the business environment, combined with increasing the complexities and risk, will require a high degree of judgement as companies approach the year-end reporting cycle. Not surprisingly, audit committee oversight will be critical. In fulfilling their governance role, audit committees may want to discuss management’s approach and conclusions to 10 common topics during the year-end reporting cycle.
Defining the role of the audit committee in overseeing ESG
While 2020 has been a challenging year for many companies, the pandemic has provided a reason to spotlight the importance of a purpose-driven strategy to drive business and societal value and highlighted the interrelationship between long-term corporate strategy, the environment, and society. Many companies have also reevaluated their corporate purpose and ability to drive the long-term sustainability of their enterprise by addressing environmental, social, and governance (ESG) strategies and challenges.
The ”G” in ESG and the important role the board of directors and each board committee plays in overseeing the company’s transparency around sustainability initiatives continues to be a primary focus in the ESG conversation. The “G” can be described as the governing structure, policies, and practices employed by an organization to define responsibilities and decision-making rights that provide the foundation for overall accountability and credibility. Included in this is how the board defines its committee structure and delegates oversight responsibility across the board and its committees.
Audit committee challenges and priorities in the upcoming quarter and beyond
Does it feel like Groundhog Day? On a personal level, it may feel like each day blends into the next, and many of us find ourselves waiting for the current conditions to pass so things can get back to normal. But companies can’t simply take a wait-and-see attitude. They need to respond quickly to the change in the business landscape, both internally (e.g., forecasting, systems, and process) and externally (e.g., communication with stakeholders, go-to-market strategies). It’s not only about how long the current environment will last, but how to position the company in the current environment and prepare for the “new normal.” If companies stay the course and don’t evolve during the pandemic, they are likely to fall behind competitors.
Audit committees have a critical role in helping companies evolve and thrive in this environment. To provide effective oversight and help company executives navigate these challenging times, audit committees need to ask direct, targeted questions of management to understand what alternatives were considered and chosen in addressing key issues. Audit committees should be aware of issues that are top of mind, trending, and ongoing, as well as the tension points, challenges, and alternative solutions associated with those issues.