Audit committee chairs lead on topics beyond balance sheets

In the past few years, the role of the chair of the audit committee has evolved to encompass topics beyond accounting, including Covid-19, goodwill accounting, and ESG considerations.

With those new responsibilities in mind, global accounting firm Deloitte recently revamped its Audit Committee Guide, in its first overhaul since 2018. The company conducted a survey that found audit committees were being challenged by increased complexity in their core responsibilities.

Audit committees are traditionally tasked with helping direct a company’s focus, Gary Zyla, CFO at investment services firm AssetMark, told CFO Brew in an email. Zyla said an audit committee often helps steer the business toward “investments that could help improve our processes, reduce risk, and help to ensure good reporting of our financials.” He added that an audit committee “may push a company to focus investment on improving their IT system or CRM system, or another financial system that plays an integral role in the health of the company.”

Beyond financial statements, “roughly 70% of audit committee chairs cited environmental, social, and governance (ESG) matters as a key area of discussion,” found a survey of more than 240 audit committee chairs from the Public Company Accounting Oversight Board (PAOB). The survey also found that external auditors are holding “educational sessions” outside typical audit committee meetings, on topics like cybersecurity and the use of technology in audits.

Krista Parsons, audit and assurance managing director, audit committee program leader, Center for Board Effectiveness, at Deloitte & Touche, cited the SEC’s recent climate proposal as a key reason that audit committees have been expected to take on more responsibilities. And while companies are looking to add ESG controllers to their accounting ranks, audit committees play a critical role in executive oversight for reporting-related matters, and are also expected to be in the know about environmental finance.

CFOs have traditionally been sought out for corporate board roles, particularly to oversee audit committees, given their financial backgrounds. But as the role of the audit committee expands, an audit chair may be asked to give guidance across a wider range of topics.—KT