Fraud. Risk management. Crisis communications. Taxes. Litigation risk. Information technology. More than 50 audit committee chairs residing in or representing companies in California, Hawaii, Idaho, Montana, Nevada, Utah, Washington, and Wyoming have discussed these and other important audit committee oversight issues in our West Audit Committee Network (WACN), founded in 2005. The network is divided into North and South Chapters, which meet separately and together periodically. EY supports this network.
This dialogue has contributed to enhanced audit committee performance and highlighted opportunities for directors across the region to refine corporate governance practices.
Recent network topics:
Boards and audit committee members are carrying out their oversight duties in an era of widespread change. New technologies are transforming company structure and strategy, and new accounting standards changing the way companies disclose their performance. Members of the North and South chapters of the West Audit Committee Network met on September 27 and 28 for the network’s seventh annual joint meeting to discuss how they plan for the future and supervise rapid transformation.
Pending changes to the revenue recognition standard are front of mind for audit chairs. So are bigger picture issues, such as the board’s oversight of talent development and management succession plans.
The prospect of comprehensive tax reform – with lower corporate rates, major changes to the rules for deductions, and a potential border adjustment tax – creates both opportunity and uncertainty for companies and their audit committees. At the same time, the rising popularity of non–generally accepted accounting principles (non-GAAP) metrics is forcing directors to refocus their efforts on controls and procedures to ensure comfort with their companies’ financial and operational disclosures.
New technologies, business models, and social media are rapidly transforming industries and the way companies communicate with the public, creating new challenges for directors. At the same time, as a greater proportion of equity is held by institutional investors with empowered governance professionals, the relationship among companies, boards, and shareholders is constantly evolving. Members of the North and South chapters of the West Audit Committee Network met on November 28 and 29, 2016, in Rancho Santa Fe, California, for the network’s sixth annual joint meeting to discuss these and other topics.
On June 14, 2016, members of the North chapter of the West Audit Committee Network (WACN) met in Palo Alto to discuss the board’s role in capital allocation decisions, with a focus on returning capital to shareholders and on allocating resources for executive compensation. Members were joined for the meeting by Jeff Greene, EY’s global transactions leader for life sciences. John Anderson and Matthew Isakson from Meridian Compensation Partners joined members for part of the meeting.
On March 7, 2016, members of the North Chapter of the West Audit Committee Network (WACN) met in Palo Alto, CA. In one session, members were joined by Bjorn Malmlund, EY Partner and West region Fraud and Investigative Dispute Services leader, and Caz Hashemi, a Partner at Wilson Sonsini Goodrich & Rosati, for a discussion about the board’s role in special investigations. In another session, members discussed Securities and Exchange Commission (SEC) trends with EY Partners Brad Herrmann and Jeff Slate.
Members of both the north and south chapters of the West Audit Committee Network met on November 11 and 12, 2015, in Pebble Beach, California, for the network’s fifth annual joint meeting. In one session, members discussed trends in cybersecurity with Shawn Henry, president of the services division and chief security officer at the cybersecurity company CrowdStrike. In another session, members discussed shareholder activism with Judy O’Brien and Cal Smith, partners in King & Spalding’s corporate practice group. Members were also joined by Les Brorsen, EY’s Americas vice-chair for public policy, for a dinner conversation about political and regulatory affairs.
Our latest issue of VantagePoints consolidates perspectives from meetings this past winter of over 80 audit committee chairs across North America. Within this issue, we address corporate culture and compliance, with a focus on the challenge directors face in assessing culture from their seats in the boardroom; new analytics tools that are changing companies' perceptions not only of their markets and customers, but also of their own operating and reporting systems; and finally, corporate tax as a matter of reputational concern, including ways to take charge of the narrative so as to tell the company's true tax story.
On May 12, 2015, members of the South chapter of the West Audit Committee Network met in Santa Monica, CA, to consider the characteristics of high-performing audit committees and ways to improve committee performance. In a separate session, members were joined by EY partners Jeff Kaufman, the firm’s Southern California tax leader, and Juliette Meunier, an employee benefits expert, to discuss emerging tax risks and implementation of the Affordable Care Act (ACA).
Fostering an ethical corporate culture requires a commitment from the board and management leaders. Audit committee chairs discussed how they learn what is really going on at their companies beyond just what they hear in the boardroom. They also emphasized the importance of encouraging a culture of compliance where ethical achievements receive the same or greater recognition as financial ones. On the flip side, they said that boards must punish (and even fire) executives that fail to live up to a company's cultural values.
Our third issue of VantagePoints consolidates perspectives gleaned from meetings this past fall of over 80 audit committee chairs across North America. A common theme emerged from those discussions, anticipating change. Within this issue, we further explore: dialogue among audit committee chairs and members of the Public Accounting Oversight Board (PCAOB); expectations for China and what a changing China will mean for the global economy as well as individual companies' operations; the new converged standard on revenue recognition, which goes into effect at the beginning of 2017; and finally the topic of risk and the close connection between strategic planning and risk.
The North and South Chapters of the West Audit Committee Network Audit joined together to discuss the ways auditors, audit committees, and regulators do their jobs. They examined advances in the field of data analytics and how those advances can transform public company audits. Members were also joined by guests from the PCAOB to explore audit quality in the United States and the PCAOB’s ongoing project to establish a set of audit quality indicators.
A common thread through each director discussion across all the North American regional audit committee networks was the importance of clear expectations and communications to establish and maintain strong and effective working relationships. Within this issue of VantagePoints the benefits of good communications were addressed across a variety of contexts: between the audit committee and internal audit in the face of ever-growing demands of that function, between the public and private sectors in collaborating on cybersecurity, and between companies and analysts in the disclosure of a company’s financial reporting.
Audit committee chairs and investment analysts discussed the sources, including audited financials, non-GAAP financial information, company visits, and information from third parties, that analysts use to create investment recommendations. The guests and WACN members also candidly described their views on company communication with investors and on public policy matters related to financial reporting.
West Audit Committee Network - North
Audit Committee Chair, Esterline Technologies