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KPMG's Audit Committee Institute Offers Annual 'Ten To-Do's for Audit Committees in 2010'

KPMG's Audit Committee Institute Offers Annual 'Ten To-Do's for Audit Committees in 2010'

PRNewswire via Yellowbrix

January 07, 2010

NEW YORK — “Corporate audit committee members know they have a sizeable task in 2010 as they confront high shareholder expectations, new regulations and legislative reforms, and a tenuous economic recovery,” said Mary Pat McCarthy, executive director of the Audit Committee Institute (ACI) and a Vice Chair of KPMG LLP, the U.S. audit, tax and advisory firm.

To help audit committees focus their agendas on key challenges in the year ahead, KPMG’s Audit Committee Institute again offers its annual “memo” to directors – “Ten To-Do’s for Audit Committees in 2010” – highlighting issues that should be top of mind.

“The year ahead is sure to test virtually every audit committee and these to-do’s can be a great catalyst for shaping the audit committee’s agenda and focusing its discussions,” McCarthy said.

ACI’s “Ten To-Do’s for Audit Committees in 2010”

When considering and carrying out their 2010 agendas, audit committees should:

1. Regain control of the audit committee agenda. The challenges of the economic crisis—access to capital, cash flow, counterparty risks, impairments, etc.—have dominated audit committee agendas. As signs of recovery emerge, take the opportunity to develop more focused (yet flexible) agendas, with an eye on the company’s key financial reporting risks. To improve the efficiency of committee meetings, insist on quality pre-meeting materials, spend less time on low-value or checklist activities, and engage in discussions rather than listening to presentations. Don’t let compliance activities crowd-out substantive discussion.

2. Understand the risks posed by cost reductions made in response to the economic crisis. Cost cutting has been a key response of most companies to the economic crisis. Every board and audit committee should be asking whether the company’s delivery model has been changed permanently, and whether a “cost-reduced” business model can be sustained. Did we cut too much? How quickly can we restore critical infrastructure such as IT and sales force? How far have we extended the organization through outsourcing and off-shoring? As companies cut costs and reduce their workforce, the control environment becomes even more critical. Now is not the time to cut-back on internal audit’s budget. (See #6.)

3. Focus closely on all financial communications. Earnings releases and scripts for analyst calls often pose more issues than the 10-Qs because they contain important business information—which often does not come from the financial reporting system, is not audited, and is not subject to internal controls. If you haven’t already done so—given the uncertainties created by the economic crisis—reconsider the types of earnings guidance the company issues. Engage early-on in reviewing 2010 proxy disclosures, particularly new disclosures regarding risk, compensation, and corporate governance. Understand the company’s policy on the use of Twitter and other social media networks to reach investors and customers.

4. Continue to monitor fair value issues, impairments, and management’s assumptions underlying critical accounting estimates. These issues, together with pension funding shortfalls and going-concern challenges, will continue to be a major area of focus for audit committees. At the same time, there are important new financial reporting developments—including changes in accounting for transfers of financial assets, revenue recognition, and IFRS—that may require the committee’s attention. Set aside time at each committee meeting for a deep dive into a specific financial reporting development impacting the company.