Audit committee focuses on financial reporting risk

With accounting change and a greater SEC focus on financial reporting and disclosure violations, having a strategy is necessary.

In January 2017, audit committee members from around the world joined KPMG in Boca Raton for the 13th Annual Audit Committee Issues Conference to discuss governance challenges that boards will face in the year ahead. One of the most important issues discussed was how to deal with financial reporting risk.

With a number of significant accounting changes on the horizon and a greater SEC focus on financial reporting and disclosure violations, audit committees are very interested in how to oversee financial reporting risk. To discuss this crucially important item, Cindy Fornelli, executive director of the Center for Audit Quality, led a panel discussion with Michele Meadows, head of KPMG’s restatement services and Tom Kim, a partner with the law firm of Sidley & Austin. The panel explored the financial reporting risk environment, as well as some of the important implications for audit committee oversight.

KPMG’s Meadows discussed the new revenue standard and the new leasing requirements. She noted that implementing these two major accounting rules is likely to present major challenges for U.S. companies and that audit committees need to be aware of the issues and monitor their companies’ progress. “A lot of companies are behind on implementation, and they are not disclosing that to investors. The SEC is looking for those disclosures. If the company will not be ready or will rely on manual processes while implementation is underway, the audit committee needs to understand that, and should understand whether management needs assistance,” she says.