Audit committee issues

BoardroomDirect ®
Update on current board issues: June 2012

Audit committee issues

FASB parent forms private company standard council

After years of debate, the Financial Accounting Foundation (FAF), which oversees the Financial Accounting Standards Board (FASB), is creating a Private Company Council to improve the standard-setting process for private companies.

The council will decide on exceptions or modifications to existing nongovernmental U.S. GAAP for private companies. It also will serve as the primary advisory body to the FASB on the appropriate treatment for private companies for items being considered on the FASB’s technical agenda. For more information on the council, read the FAF report.

“The plan approved by the [FAF] Trustees strikes an important balance," FAF President and CEO Teresa S. Polley said. "On one hand, the plan recognizes that the needs of public and private company financial statement users, preparers, and auditors are not always aligned. But at the same time, the plan ensures comparability of financial reporting among disparate companies by putting in place a system for recognizing differences that will avoid creation of a ‘two-GAAP’ system.”

The council will consist of nine to twelve members. The chair will not be a FASB member. The council membership will comprise individuals with backgrounds and experience in using, preparing, and auditing private company financial statements.

The idea for a Private Company Council dates back to 2006, when the FASB created a Private Company Financial Reporting Committee with the American Institute of Certified Public Accountants (AICPA).

For additional details about the FAF’s plan, see PwC's In brief 2012-11, Financial Accounting Foundation announces new council to improve standard setting for private companies and The Quarter Close - Directors' Edition, Q2, 2012.

PwC publication focuses on effective audit committees

In a recent piece of thought leadership, PwC published a list of ten leading practices to enhance audit committee effectiveness. The practices focus on effective audit committee oversight, effective audits, and delivery of quality financial statements.

The recent 10Minutes on effective audit committees publication breaks down the leading practices into four categories: communications between the auditors, management, and audit committees; financial reporting quality and transparency; audit quality; and continuous learning.

The PwC list of ten leading practices for audit committees includes:
  • Meet regularly with auditors outside of formal audit committee sessions.
  • Speak candidly with auditors and management. Respect the privacy of those conversations, when appropriate.
  • Challenge management to provide robust disclosures in plain English.
  • Have deep-dive sessions with management and auditors to understand complex areas of financial reporting.
  • Challenge management to reconsider historical policies and practices as economic environments change.
  • Set performance expectations for auditors. Provide them with clear feedback and discuss ways for them to improve.
  • Learn from the results of the auditor's internal and external regulator quality inspections.
  • Attend audit committee learning programs at least annually.
  • Benchmark the committee's working practices against those of other audit committees.
  • Consider the committee's performance. Self-evaluate to identify ways to continuously improve.