PwC Has Ten Items for Your Next Audit Committee Agenda
PwC’s Governance Insights Center has agenda suggestions for your next audit committee meeting. (Based on PwC’s list, it would be advisable to block out a considerable amount of time for the meeting). Q1 2023 Audit committee newsletter: Helping you prepare for your next meeting proposes ten agenda items:
New disclosures for supplier finance programs. Beginning in the first quarter of 2023, Accounting Standards Update No. 2022-04 requires companies to provide new disclosures about supplier finance programs. “The audit committee will want to understand the company’s supplier finance program strategy, presentation considerations and how disclosures may be impacted.”
ESG reporting: Checking in on the “big three” frameworks. The “big three” are the SEC’s proposed climate disclosure rule, the EU’s Corporate Sustainability Reporting Directive, and the draft standards of the International Sustainability Standards Board. “The audit committee will want to understand how management is keeping track of new international disclosure regulations and standards and their potential impacts on the company and its disclosures.”
Proposal would require significant new income tax disclosures. The FASB has proposed new income tax disclosures, including a rate reconciliation table. “The audit committee will want to understand how management is considering the potential impacts of the new disclosures.”
FASB makes key decisions on income statement disaggregation project. The FASB has tentatively decided to require footnote disclosure that disaggregates income statement expense line items into four categories: (1) compensation, (2) inventory expenses, (3) fixed asset depreciation, and (4) amortization of intangibles. “The audit committee will want to understand management’s processes for monitoring and scoping this standard.”
FASB proposes accounting guidance on crypto assets. The FASB has issued an exposure draft on crypto asset accounting. “[A]udit committees will want to understand management’s overall crypto strategy; the business and financial reporting risks; management’s plan for monitoring, measuring and mitigating those risks; and the processes and controls put in place to support the appropriate accounting and disclosure for crypto activities.”
Audit committee peer exchanges identify key areas of focus. PwC has hosted audit committee member “peer exchanges” at which nine high-priority matters have been identified: audit committee effectiveness; interaction with internal audit; ESG oversight; enterprise risk management; non-GAAP measures; talent management; cybersecurity oversight; SEC clawback rules; and board member continuing education.
Participating in shareholder engagement may be your future. Board members may be called on to interact with large or activist shareholders, and audit committee members should therefore understand the company’s shareholder engagement priorities.
Risk oversight: An audit committee imperative. “[T]he audit committee will want to ensure that mechanisms are in place for it to receive appropriate reporting of management’s risk identification, monitoring, measurement and mitigation efforts.”
Re-examining the audit committee calendar. Audit committees should revisit their annual calendars because “agendas are changing rapidly, as they adjust to accommodate the evolving geopolitical and macroeconomic impacts on financial reporting and the oversight of an increasing number of and types of risks * * *.”
Recurring agenda items. PwC lists items that should be on every audit committee meeting agenda (or at regular intervals): Hotline complaints and code of conduct violations; changes in the regulatory environment; executive sessions; related-party transactions; internal and external audit plan; and discussions with the CIO, CISO, General Counsel, and Head of Tax.
For other recent audit committee agenda suggestions, see What Should be on the Audit Committee’s 2023 Agenda?, January 2023 Update and EY on SEC Priorities for 2023, February-March 2023 Update.