What Really Matters For Audit Committee Member Actions – Considering Updating & Publishing My Audit Committee Guide

I have been considering updating and publishing again my audit committee guide. The most recent publication was as a new chapter to the 2007 California Continuing Education of the Bar publication Advising and Defending Corporate Directors and Officers, which was an excellent publication with 17 chapters on the various topics. Unfortunately for whatever reason the sales were not sufficient and CEB later discontinued the publication. I have attached a copy of my initial 2007 chapter HERE.

A lot has changed from 2007 to now. And the materials that I cover in my blog have also changed considerably. But as I have been considering a possible update and the table of contents it strikes me how much of the material consists of lists of qualifications, issues and topic areas that an audit committee and its member are required to consider. And the list is growing as we speak. Considerable detail is being added as to how an audit committee member should evaluate the sufficiency of the external auditor – in other words, a deliberate evaluation where perhaps before in many cases there might not have been any significant evaluation. This will also change how the external auditor goes about performing the audit, the value that the external auditor might provide to helping the audit committee member perform his or her oversight duties, and somewhat the relationship between the audit committee members and the external auditor. On the whole I believe the change is good. But I have also written for some time that I have concern about the long list of issues and topic areas that an audit committee member is required to consider, and that all audit committee members really do need to understand what their duties are, including what is in the audit committee charter (e.g., if the charter says “risk management” that description is simply too broad – risk management of what?).

It strikes me, however, that at the end of the day, the performance of an audit committee member’s oversight responsibilities requires:

Audit committee member understanding and competency;

Agenda;

Timely and active diligence;

Putting in the time;

Reasonable reliance on competent other people (the CEO, the CFO, internal audit if there is one, the external auditor, culture, reputation and tone at the top, the accounting and financial reporting functions and professionals, legal counsel and others);

Sufficiency of information;

Deliberative decision making; and

Anticipation and thinking ahead.

In other words, we are primarily talking about the business judgment rule.

I’m not sure that I will put in the time to update the audit committee guide. If I had a crystal ball that decision would be easy – if the guide will be read and used by enough people, or if I could find a law firm that is interested in these topics, then it is worthwhile. If I do the update, most likely I will post the updated materials in blog posts and then add to the materials as they progress. That will get the materials out considerably earlier. I doubt that I will use a publisher – in addition to many published articles I have previously formally published two audit committee related materials. The process takes longer than I prefer. And, on my blog the materials also will be free and available to everyone.

Those are my thoughts this July 3, 2015, morning. More to follow on this.

Dave Tate, Esq. (San Francisco / California)

Advertisements