What audit committees really want from CFOs

Introduction

For some CFOs, preparing to appear before the audit committee may conjure memories of final exams or first job interviews. Indeed, CFOs’ quarterly presentations before the audit committee could be seen as a test of sorts.

The audit committee’s responsibilities are broad, ranging from reviewing management’s approach to enterprise risk, to understanding financial reporting disclosures, to evaluating its processes and controls and compliance matters, to assessing the performance of its external and internal auditors, and beyond. Furthermore, many aspects of the committee’s work is shaped by rules and regulations issued by a combination of the U.S. Securities and Exchange Commission (SEC), the listing exchanges, and other regulators specific to the company. For CFOs, whose role includes guiding the committee through the company’s financial results and reporting on its risk management activities, it can be difficult to figure out where to begin and how to end.

Additionally, the sense of urgency that drove the priorities of both CFOs and audit committees in recent years, as they strategized their way through a once-in-a-lifetime global pandemic and the switch to remote work practically overnight, added to the complexity and regularity of CFO and committee interactions. With those lifetime events showing signs of subsiding, the frequency of meetings has stopped increasing. The average number of audit committee meetings among S&P 500 companies rose to 8.4 a year in 2021, but has since retreated to 8.2, according to a recent study.¹

But in the midst of regulatory developments, rising interest rates, and simmering geopolitical tensions, CFOs still face a formidable challenge in keeping audit committees updated as they explain the financial implications of evolving threats and intensifying market forces and, of course, the company’s performance or lack thereof. Not only do CFOs have the task of deciding which details are most critical to communicate, but they also face the expectations to deliver it all succinctly and confidently in a limited amount of time.

After a meeting, CFOs might wonder: Did I use the audit committee’s time productively, fulfilling its expectations? Would the committee members say I provided them with an effective level of information to vote on certain actions, or saddled them with more piles of data?

In this edition of CFO Insights, we’ll synthesize what we’ve learned from engaging CFOs in our labs and forums and from interviewing audit committee chairs and members as part of our CFO Program’s CFO Transition Lab™ offering, as well as through other client interactions, to provide CFOs with general answers to that seminal question: What do audit committees really want?

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