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  • Daniel Goelzer

How Audit Committees Can Maximize Their Value

Tapestry Networks (“Tapestry”), a professional services company that “enables senior leaders from the public and private sector to engage each other and their external environment directly and constructively to achieve higher ground on some of the biggest issues confronting society today,” has released Adding value: Perspectives on the audit committee’s dynamic role (“Adding Value”). From May 13 to June 25, 2021, Tapestry convened six virtual meetings with the audit committee chairs of approximately 100 large U.S. public companies to exchange views on how audit committees can maximize the value they deliver to their companies and boards. Adding value, which appears in the July 2021 edition of Tapestry’s publication Viewpoints, synthesizes the discussion at these meetings. Tapestry’s audit committee networks are sponsored by EY, and EY representatives participated in the six virtual meetings.


Adapting Board and Audit Committee Processes


The pandemic disrupted decades-old audit committee practices and norms. Committees are now assessing the extent to which these changes should become permanent. For example, there appears to be some tension between the recognition that virtual meetings are an efficient and effective means of conducting audit committee business and the recognition that they cannot completely replace in-person meetings:

  • Virtual meetings are efficient and generally effective. Among other things, virtual meetings avoid the “wear and tear” of travel, result in crisper and more disciplined presentations, and enable audit committees to engage directly with a broader segment of company management. Video conferencing has also encouraged splitting meetings into shorter segments, which helps to maintain focus.

  • Technology is not a replacement for in-person meetings. Tapestry notes that many audit committee chairs “pointed to elements of culture and trust that were difficult to replicate in the virtual world.” Further, virtual meetings can devolve into check-the-box exercises and are not conducive to sidebar conversations or getting to know people on a personal level.

Most audit committee chairs expect that, in the future, committees will employ a combination of virtual and in-person meetings. One participant said, “We plan to continue to cover more routine and administrative items in virtual, off-cycle meetings and save the strategic conversations for in person. It takes more hours, but it is more productive.”


Reshaping Audit Committee Agendas


Discussants singled out environmental, social, and governance (ESG) disclosure and performance as a newly emerging area of audit committee responsibility. In many cases, the audit committee’s role is to assess the quality of ESG reporting and the controls used to ensure its accuracy. One participant said, “While ESG responsibility resides in the nominating and governance committee, the audit committee’s contribution is to validate the numbers. We look closely at the design and testing of the controls. Before the company releases data, it is important to do more to get comfort around completeness and accuracy.” Since ESG has both strategic and disclosure aspects, it affects the work of several committees. As boards delegate ESG responsibilities to different committees, committee charters should be updated to reflect these new responsibilities.


Participants also cited a variety of other topics as audit committee agenda priorities:

  • Risk oversight. The pandemic caused audit committees to rethink their approach to risk oversight. Some audit committees are enhancing their oversight is by scheduling deep dives on specific, high-risk topics either for the committee or the full board. Some participants raised the issue of whether the common approach of delegating risk oversight to the audit committee was adequate. One suggested instead a subcommittee on enterprise risk management comprised of the chairs of each committee.

  • Cybersecurity and data privacy. Ransomware attacks and the “evolving privacy landscape” were mentioned as emerging challenges. “While cybersecurity has been a priority for many years, recent events have raised the stakes for audit committees.”

  • Finance function talent. Audit committee oversight of the finance function is presenting new challenges. Finance talent is in short supply and, as geographic location becomes less relevant, it is easier for professionals to change jobs. “The success finance professionals have achieved while working remotely is testing companies’ abilities to attract and retain top talent.”

  • Internal audit oversight. “The remote environment strained internal audit teams, who are typically accustomed to face-to-face engagement. In addition, as functions adopt new technologies, some audit chairs wonder whether they have the right internal audit leadership to take advantage of these capabilities.

  • Transactions and integration. In a virtual environment, there are significant challenges associated with performing due diligence and with integrating companies virtually.

Enhancing Committee Composition


Audit committee chairs commented on committee composition and “how best to refresh the committee, strengthen its membership, and ensure that it is adding as much value as possible.” Observations in this area fell into three categories.

  • A mix of skills, backgrounds, and expertise. Boards are taking a broader view of who should serve on the audit committee. Desirable attributes of new committee members include IT/cybersecurity expertise (e.g., chief information or chief information security officers), complementary financial skills (i.e., individuals with financial expertise, but different backgrounds, such as a retired auditor and a CFO), and diversity (“As companies revisit their records and responsibility on diversity, equity, and inclusion, the push for diversity has spurred competition for board candidates.”).

  • Training and development initiatives. The pandemic may have long-term consequences for board training and onboarding. The virtual meetings are well-suited to the initial stage of onboarding, but not to building personal relationships. Service on the audit committee can be a good way to learn about the company.

  • A balanced approach to tackling audit committee responsibilities. Participants raised questions about the best way for the chair to use the talent on the audit committee. Some favor delegating portions of the committee’s work—especially work between meetings—to members with specialized expertise Others were uncomfortable with delegation, fearing that it would lead to “silos that make for inefficiencies.”

Comment: Adding value sees the disruption caused by the pandemic as an opportunity: “Audit committees have a once-in-a-generation opportunity to reshape the way in which they convene, the issues that rise to the top of a crowded agenda, and their own perspectives and membership. Through all of this, audit committee chairs see it as imperative to add even more value to their companies and boards than ever before.” Audit committee members may want to consider the points raised in the Tapestry conversations and consider whether any have applicability to their committee and its work.

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