For audit committees at public companies focused, yet flexible agendas — exercising judgment about what does and does not belong on the committee’s agenda, and when to take deep dives — will be critical this year.
According to two new reports from KPMG audit committees will be put to test by financial reporting, compliance, and the risk and internal control environment.
KPMG LLP’s Board Leadership Center recommends audit committee members help keep their companies focused on long-term performance, but they should expect disruptions from technology and other areas. The tone at the top of an organisation and reputational risks are especially important this year after a string of revelations over the past year.
With the revenue recognition standard taking effect this year, accounting will be a big topic of concern.
Another important concern in the US is the Tax Cuts and Jobs Act, the far-reaching tax legislation that President Trump signed into law last month. Even though it lowered the top corporate tax rate to 21%, it also contains some important provisions that aim to encourage multinational companies to repatriate the profits they have been holding in foreign subsidiaries.
Companies will also need to get ready for the accounting standards that will be taking effect in the next few years, including the leasing and credit loss standards.
Cybersecurity will also be a big concern, especially after revelations last week about a vulnerability discovered in Intel chips. While some large financial institutions have risk committees or cyber committees set up to deal with cybersecurity, it often falls under the purview of audit committees at many corporations.
Audit committees will also be dealing with the new audit reporting standard that the Public Company Accounting Oversight Board in the US approved last year.
Internal auditors will also be facing some extra responsibilities this year, which could include dealing with the fallout from the wave of sexual harassment allegations sweeping the country in recent months.
According to KPMG, the tone at the top also needs to extend to the middle management level. “Audit committees are starting to focus on the tone in the middle of the organisation. For a lot of companies, the CEO or the C level sends out the right messages, but what’s going on in the middle of the organisation? The internal auditor and audit can play a role in assessing the company’s culture. That’s going to continue to be a hot spot, and audit committees are going to continue to spend time on that. It’s not necessarily the financial exposure, but it’s reputational damage to the organisation. How do they interact with the audit committee? How do they interact with the board and really assess what the key risks in the organization are, and the potential damages or reputational damages to the company?”