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Everything you need to walk into your next audit committee meeting with confidence
With the end of Q2 approaching our guide can help you streamline meeting prep, prioritize agenda items, and plan for the future.
Let’s get started...
The House has passed H.R. 1, the “One Big Beautiful Bill Act,” a sweeping package that could significantly alter the US tax landscape. As the Senate takes up the bill, audit committees face urgent questions around accounting, compliance, and strategic readiness. As you navigate what it all means for the companies you oversee, we’ve boiled the ocean down to a few timely topics that may deserve some attention as you close out the quarter:
Topic 1 US Tax Policy – H.R. 1: “One Big Beautiful Bill Act”
What the audit committee needs to know
On May 22, the House passed H.R. 1, the “One Big Beautiful Bill Act,” bringing some level of clarity to US tax policy outlook. H.R. 1 includes proposed tax law changes, increased funding for border security and national defense, and spending reductions affecting many federal programs. The tax provisions, among others, of H.R. 1 would extend permanently, with some modifications, certain individual, pass-through business, and international tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA) that currently are set to change at the end of this year.
Senate action on the legislation began in early June. The legislation is being considered under reconciliation instructions provided in the fiscal year 2025 budget resolution approved in April by Congress that will allow the legislation to be approved by Republicans in the Senate with a simple-majority vote, instead of the 60-vote majority usually required. Congressional leaders have set a goal of sending a final bill to be signed by President Trump before Congress begins a July 4 recess.
The documents referenced at the end of this section include PwC observations on the current landscape and potential scenarios. Monitor our US Tax services page to stay up to date on the latest developments.
Why is it relevant to the audit committee?
Given the significance and potential complexity of H.R. 1 and follow-on considerations from the Senate, audit committees should consider how best to engage with management to assess companies’ preparedness. The expectation for US tax policy changes in 2025 means companies will be faced with several accounting and financial reporting challenges, such as changes to deferred tax assets and liabilities and projected cash tax payments in 2025 for changes that are retroactive to the beginning of 2025, changes to valuation allowances that could arise from changes to the TCJA provisions, and disclosure of the estimated impact of proposed but not enacted legislation. Companies will have increased compliance obligations.
The audit committee will want to confirm management has processes to monitor tax developments and is prepared to account for the impacts of changes appropriately. Under US GAAP, changes in income tax rates and law are accounted for in the period of enactment. For US federal purposes, this is the date the President signs a bill into law. The audit committee will also want to understand how management is addressing the benefits and risks of significant tax developments going forward as well as the company’s ability to respond under varying scenarios.
What questions should the audit committee ask?
- What is management’s process for monitoring and modeling tax developments and their potential impacts on the company?
- What are the key assumptions used in management’s current tax forecasts?
- How are the potential impacts of tax policy changes being incorporated into earnings guidance?
- What are the provisions that would have the most impact on the company’s business operations, cash taxes and/or effective tax rate?
- How do the potential tax policy changes affect the company’s competitive position within the industry?
- Has the company benefited from tax credits? What were the significant financial statement effects of these benefits?
- What is management’s process for assessing resource needs, including specialist knowledge and adequacy of the technology to support the finance and tax teams’ data and reporting needs?
- What is internal audit’s process for evaluating the company’s internal controls over tax reporting to confirm they are designed to accommodate change rapidly?
- How is the external auditor evaluating management’s approach to interim tax accounting in the current uncertain policy environment?
Topic 2 Accounting for market/geopolitical uncertainty
What the audit committee needs to know
As the second quarter of 2025 comes to a close, it is a critical period for companies navigating a business environment that is increasingly being shaped by market volatility and global geopolitical tensions. From renewed tariffs between the US and China to ongoing conflict-driven disruptions in Eastern Europe and the Middle East, the ripple effects on global supply chains, commodity pricing, and currency stability may impact companies’ financial performance and reporting, as well as risk assessments.
Against this backdrop, audit committees need to understand how macroeconomic and geopolitical factors can impact accounting estimates, internal controls, and financial disclosures. Uncertainty and volatility have become important aspects of the current operating environment.
Why is it relevant to the audit committee?
Audit committees have a critical role to play in supporting financial reporting accurately reflects the impacts of the current environment. Recent geopolitical events have led to increased scrutiny of global supply chains and trade relationships. As a result, key accounting areas that could come under pressure include the following.
- Inventory valuation: Supply chain delays and tariff-induced cost shifts may impact inventory obsolescence, excess, or impairment judgments. Companies might need to reevaluate their inventory accounting methods or write down inventory if its market value declines due to increased costs.
- Revenue recognition: Changes in pricing or the availability of goods and customer behavior changes due to current market events can influence revenue recognition. Companies might experience shifts in sales timing or volume, which can affect revenue projections and recognition practices.
- Foreign currency translation: With the dollar experiencing increased volatility against major currencies, translation gains/losses and foreign currency hedging strategies may require heightened scrutiny.
- Impairment testing: Geopolitical risk is changing the economic outlook for various business units and geographies, which may require interim impairment reviews, especially for goodwill and long-lived assets.
- Disclosure requirements: Companies may need to disclose the potential impact of market events on their financial condition and results of operations. This includes risk factors, management’s discussion and analysis (MD&A), and potential forward-looking statements.
What questions should the audit committee ask?
- How might the current environment influence the company’s pricing strategy, and what are the potential impacts on product demand and revenue?
- What is management’s process for evaluating how market uncertainties might affect inventory valuation? Are there risks of inventory obsolescence or write-downs due to increased costs?
- What is management’s process to proactively identify and mitigate market risks such as accurately forecasting earnings and maintaining compliance with evolving regulatory requirements, while also maintaining transparency with investors?
- How has management considered strategic changes in response to the impact of potential retaliatory actions from trade partners (e.g., relocating manufacturing, supplier changes)?
- How is the internal audit function proactively evaluating whether risk management systems are adequate to monitor geopolitical exposure and whether enterprise risk assessments adequately reflect the current operating environment?
- How will the external auditor’s approach address the potential risks and impacts associated with market uncertainty?
Topic 3 Audit committee oversight of artificial intelligence
What the audit committee needs to know
Artificial intelligence (AI) is fast becoming an intrinsic part of business, empowering companies to actively identify how they can use the technology to transform strategy, products, services, operations, and more. It’s poised to redefine business models, revolutionize workflows, and reshape entire industries. However, realizing the full potential of AI requires understanding its risks as well as its upsides. This includes a risk management approach and appropriate policies, processes and controls to use AI responsibly in a manner that sustains trust. For boards, oversight of AI means providing feedback and advice to management on how AI may impact strategy and risks while fostering a spirit of experimentation and exploration.
Why is it relevant to the audit committee?
Typically, the full board has primary oversight of AI. Sometimes, however, the audit committee may have been given primary responsibility. Even when the audit committee does not have primary responsibility, it has a role to play, overseeing the strategic and responsible use of AI in areas within its remit. Many audit committees also oversee cybersecurity, data security and privacy, and should address the impact of AI on these areas.
As companies begin to evaluate and use AI in the financial reporting process, audit committees will want to understand where, why and how management is using it and verify that appropriate controls and processes are in place to manage unique AI-related risks. For example, the audit committee will want to understand if the company has updated its controls to address the use of AI agents that perform reviews and approvals that were formerly done by humans.
Audit committees will want to understand how internal audit is using AI to conduct its audits more effectively and efficiently as well as what the outcomes and findings are from their audits across the company on AI model use and risk management. Similarly, the audit committee will want to understand how AI is revolutionizing the way external auditors do their work. This could include how AI impacts the external audit team’s talent strategy, the audit methodology, and how AI models and tools used are tested and validated.
More broadly, the audit committee should understand where and how the company is using AI to manage its compliance and ethics programs as well as how it is being used to detect fraud (e.g., anomaly detection). Audit committees should also understand how the company is incorporating AI risks into its ERM program and how AI may impact cybersecurity and data privacy, if under the audit committee’s responsibility.
What questions should the audit committee ask?
- How is the audit committee upskilling on AI so that it can engage with management effectively?
- What is management’s process for driving the responsible use of AI throughout the company?
- How are AI models tested for accuracy, completeness, reliability, data bias, and other risks prior to and after deployment?
- What is management’s process for determining higher risk AI models? How is management addressing development, deployment and validation for these models?
- What is management’s process for incorporating AI risks into its ERM program?
- How is AI being leveraged in the ERM program to drive a more proactive approach to risk management?
- How is internal audit using AI to conduct its audits more effectively and efficiently?
- What outcomes and findings on AI model use and risk management has internal audit identified from its audits across the company?
- How is AI impacting the external auditor’s talent strategy? How are AI models and tools used in the audit process tested and validated?
Topic 4 Adding special topics and deep dives to the agenda
What the audit committee needs to know
In today's fast-paced and complex business environment, audit committees are increasingly tasked with overseeing a broad spectrum of matters that extend beyond their traditional core financial reporting oversight. These matters include risks associated with evolving regulations and standards, the impacts of geopolitical and economic shifts, processes and controls relating to digital transformations, AI oversight, cybersecurity, corporate tax changes, and a host of other matters. As a result, audit committees are periodically allocating time on their agendas to dive deep into one or more of these important matters.
Deep-dive sessions can take the form of a comprehensive update from management on key oversight areas like cybersecurity, hearing from external subject matter experts and experiential education sessions like table-top exercises. Areas of focus may include:
Internal controls and risk management: Deep dive into key areas of risk (e.g., cyber, operational, compliance)
Tax matters: Review of the company’s tax strategy; updates on significant tax matters, including changes in tax laws and their implications
Regulatory and compliance matters: Updates on compliance with regulatory requirements, including any new or pending regulations and status of any ongoing regulatory investigations
Fraud risk and ethics compliance: Review of whistleblower reports and investigations; evaluation of the effectiveness of ethics and compliance programs
Litigation and legal matters: Updates on significant legal risks and proceedings and potential liabilities
Third-party and vendor management: Review of the risks associated with key third-party relationships and vendor management practices
Technology transformation: Updates on the impacts of technology implementations relating to talent strategy, cybersecurity, data privacy, and processes and controls in place to govern aggregating and reporting of data and information.
Why is it relevant to the audit committee?
Deep dives from management and education on special and emerging topics can provide the audit committee with detailed insights and promote understanding of matters to help fulfill its oversight responsibilities more effectively. The sessions can inform the audit committee’s assessment of management’s approach and can keep key matters in focus for the audit committee. Other benefits may include increased interactions with a broader group of management personnel, including those beyond the C-suite, and hearing outside perspectives to balance those from management or to gain insights on matters where there may not be in-house expertise. In any event, allocating time on the agenda for such discussions is critical and should be a part of annual agenda planning.
What questions should the audit committee ask?
- What enhancements have been made to the internal control environment this year?
- How is management considering the company’s tax strategy and potential tax exposures to positions taken?
- How has management considered the adequacy of systems capabilities in response to anticipated changes in US and global tax laws?
- What is management’s process for monitoring regulatory changes relevant to the business?
- Which areas of compliance have been identified either individually, or when aggregated, as having a significant risk of non-compliance?
- What is management’s process for evaluating the effectiveness of the ethics and compliance program?
- What is management’s process for identifying and addressing cybersecurity threats?
- What mechanisms are in place to detect and prevent fraud?
Topic 5 Earnings guidance in an uncertain environment
What the audit committee needs to know
In today’s volatile business environment, companies are facing significant challenges in providing accurate and reliable earnings guidance. As a result, many are reassessing their approach to earnings guidance, with some opting to reduce or withdraw guidance altogether to avoid potential inaccuracies. Others are maintaining their guidance but incorporating broader ranges or contingencies to account for unforeseen market shifts.
The decision to alter guidance is often a strategic one, influenced by a desire to manage shareholder expectations while maintaining transparency and credibility. However, when a company changes its approach to earnings guidance, it signals a shift in external messaging and in how management assesses its ability to forecast and manage risk. Changes to earnings guidance can shape investor expectations, impact stock prices, and affect a company’s reputation in the marketplace.
Why is it relevant to the audit committee?
Overseeing earnings guidance is integral to the audit committee’s role in supporting the integrity of financial reporting and safeguarding shareholder value. Therefore, it is essential for audit committees to be aware of how market conditions affect the company’s earnings outlook and the rationale behind any changes to guidance. For audit committees, the implications of changes to guidance are twofold.
- Accuracy and integrity of forward-looking information: While earnings guidance is voluntary, regulators expect that such statements be made in good faith, grounded in reasonable assumptions, and supported by internal data. If assumptions are overly optimistic or materially change, management must be prepared to explain and potentially revise guidance. Further, audit committees of NYSE-listed companies are required to discuss with management forward-looking guidance provided to analysts and ratings agencies. A leading practice for all committees is for such discussions to be held in advance of the release.
- Disclosure controls and oversight: A decision to revise guidance should flow through a robust internal review process. This includes cross-functional input (e.g., finance, legal, operations) and alignment with internal forecasts and board-level risk assessments. Audit committees should confirm these controls are operating effectively and that any decision to suspend, revise, or reaffirm guidance is well documented and supported.
What questions should the audit committee ask?
- What is management’s process for evaluating the impacts of current market conditions, such as US and reciprocal tariffs and economic volatility, impacting earnings guidance?
- What is management’s process for stress-testing financial forecasts against various geopolitical and economic scenarios?
- How has internal audit confirmed that internal controls over disclosure, including earnings guidance, are operating effectively?
- Has internal audit reviewed the processes used to develop forward-looking estimates for consistency and reasonableness?
- What potential risks, if any, have been identified by the external auditor related to the company’s guidance practices?
- What approaches has the external auditor observed from peer companies in issuing earnings guidance in this environment?
Topic 6 Evolving enterprise risk management
What the audit committee needs to know
In today’s unpredictable business environment, enterprise risk management (ERM) has emerged as a critical component of strategic planning and operational execution. Organizations are increasingly recognizing that ERM provides a comprehensive framework for identifying, assessing, and managing risks across all facets of the business, even those high-impact, low-probability risks that may be “around the corner.” Some companies’ ERM programs are keeping up with the pace of change while others may be either losing momentum or lacking adequate investment or attention.
ERM enables businesses to align their risk management strategies with overarching corporate objectives. By integrating ERM into their strategic planning, businesses can better anticipate and adapt to a wide array of challenges, from geopolitical and economic uncertainties to cybersecurity threats and climate-related risks. This helps companies to be better prepared to handle adverse events while remaining agile enough to capitalize on new opportunities. The benefits can lead to improved resource allocation, more informed decision-making, and enhanced organizational performance. Moreover, a strong ERM framework can bolster stakeholder confidence, as investors, regulators, and customers increasingly scrutinize how companies manage risks.
Why is it relevant to the audit committee?
Oversight of the company’s ERM process is among the audit committee’s most important responsibilities. The audit committee is responsible for overseeing financial reporting and confirming the robustness of internal controls, both of which are intimately linked to the organization’s risk profile. The audit committee will want to gain a deep understanding of the company’s risk landscape and confirm that the ERM framework is robust, strategic, and aligned with the company’s goals. By engaging actively with management’s ERM processes, audit committees can play a pivotal role in enhancing the company’s risk management framework, which may ultimately protect shareholder value and strengthen investor confidence.
What questions should the audit committee ask?
- What is management’s process for aligning the ERM framework with the company’s strategic objectives?
- What is management’s process for identifying the company’s top risks, prioritizing them, and developing strategies to mitigate them?
- What is management’s process for allocating risk management responsibilities across the organization, and how is accountability confirmed?
- What is the board’s process for assessing whether any reallocation of oversight responsibilities is needed, either between the full board and its committees or among its committees?
- How is the internal audit function integrated with the ERM process to support the effectiveness of risk management controls?
- How does the external auditor assess the company’s risk management practices as part of the audit process?
- What areas, if any, has the external auditor identified as requiring additional focus or improvement?
Topic 7 Mid-year considerations for internal audit oversight
What the audit committee needs to know
As the mid-point of 2025 approaches, audit committees have an opportunity to reassess their oversight of the internal audit function. This is not only a good time to evaluate internal audit’s effectiveness but is also an opportunity to evaluate its role more holistically to determine if internal audit’s mandate should evolve. For example, should internal audit’s annual plan include serving in an advisory role for operations as new systems and processes are implemented? Does internal audit have the capacity and competency to function in such a role? Are there other ways to leverage internal audit as the company has evolved? Audit committees will want to confirm that internal audit remains agile and responsive to changes in the business environment, including economic shifts, evolving regulations, and technological advancements.
In managing its expanding responsibilities, the audit committee should maintain complete engagement in its primary oversight of internal audit. Additionally, conducting a mid-year review can offer an opportunity to reevaluate the current year’s plan considering evolving priorities and facilitating any required modifications.
Why is it relevant to the audit committee?
With an ever-expanding risk landscape, the audit committee’s oversight of internal audit is essential to effective governance. As companies navigate current economic uncertainties and market volatility, the role of internal audit in providing assurance over areas such as financial reporting and aspects of operations involving important business risks, among others, becomes increasingly critical. Internal audit serves as a third line of defense in risk management, and maximizing its value is crucial for effective oversight. Key mid-year considerations for the audit committee could include:
- Reviewing internal audit’s progress against its plan
- Confirming the internal audit plan aligns with the company’s risk assessment and includes timely topics such as those related to IT and AI risks, business transformation risks, and merger integration risks, among others
- Evaluating internal audit findings and follow-up actions, including understanding overdue recommendation implementations
- Assessing internal audit’s performance
- Confirming changes in regulations or standards (e.g., The IIA’s Global Internal Audit Standards) are integrated into the internal audit plan and processes
- Assessing the use of technology and data analytics within the internal audit process to enhance effectiveness and efficiency
- Reviewing the quality and frequency of board reporting from internal audit (e.g., consider use of dashboards)
What questions should the audit committee ask?
- What processes are in place to confirm internal audit has the appropriate resources (e.g., competencies, technology) to address the appropriate areas in a thorough and high-quality manner?
- What is the chief audit executive’s (CAE) process for confirming that the internal audit function has the qualifications, skills and experience needed to address both current and emerging risks?
- What is the CAE’s process for supporting internal audit’s ongoing training and professional development needs to keep staff updated on the latest industry trends and regulatory requirements?
- What is the CAE’s process for aligning internal audit’s activities with the organization’s strategic objectives and risk profile?
- How does the CAE identify ways to improve internal audit reporting, like refining the level of details presented, using visualizations and dashboards, and implementing AI?
Topic 8 Finance transformation oversight
What the audit committee needs to know
Finance transformation is becoming increasingly critical for organizations seeking to maintain competitiveness and drive sustainable growth. The rise of digital technologies, regulatory complexities and heightened stakeholder expectations are reshaping finance functions, necessitating a shift from traditional processes to more agile, efficient, and insightful operations.
Finance transformations involve leveraging digital tools, automation, data analytics and other emerging technologies to improve financial reporting, streamline operations, and enhance decision-making capabilities. Understanding finance transformation is crucial for management and the audit committee, as it directly impacts the financial health, risk management, and compliance landscape of the company.
Why is it relevant to the audit committee?
Overseeing technological transformation is an area frequently under the audit committee’s oversight. Audit committees are uniquely positioned to guide and oversee these transformation efforts, supporting alignment with strategic objectives and adherence to regulatory requirements as well as making sure the initiative is implemented effectively and responsibly, while safeguarding against potential risks such as data breaches and financial inaccuracies.
By effectively guiding the company through the complexities of finance transformation, an audit committee can help the company achieve greater transparency, improve efficiency, and enhance the accuracy of financial information, ultimately fostering investor confidence and supporting strategic growth. Moreover, as audit committees are tasked with evaluating the effectiveness of risk management frameworks, understanding the implications of finance transformation is vital. This includes assessing the readiness of the organization to adopt new technologies, supporting that appropriate risk mitigation strategies are in place, and monitoring the impact on the overall risk profile. And importantly, the audit committee’s oversight doesn’t end at the “go-live” date but continues for some period subsequent.
What questions should the audit committee ask?
- What are the specific objectives management is aiming to achieve through finance transformation, and how will they be measured?
- What is management’s process for identifying the potential risks associated with the finance transformation process, and how are the risks being mitigated?
- How will the transformation impact the company’s compliance with existing and emerging regulatory requirements, and what measures are being contemplated to support ongoing compliance?
- What technologies are being leveraged for finance transformation, and how do they integrate with existing systems and processes?
- What is management’s plan for training and upskilling personnel to support adoption and use of the new technology and processes associated with the transformation?
- What is management’s process for maintaining data security and privacy throughout the transformation process?
- What metrics and KPIs are contemplated to monitor the progress and success of the transformation initiative?
- How frequently will updates be provided to the audit committee, and what is the process for addressing any challenges or deviations from the plan?
Topic 9 Recurring items for the audit committee agenda
Every audit committee meeting agenda should include these important items or, at least, they should be discussed at scheduled intervals:
- Hotline complaints and code of conduct violations
- Changes in the regulatory environment
- Private and executive sessions
- Related-party transactions
- Internal and external audit plan reviews
- Discussions with the CIO, CISO and GC as needed
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