Audit Committees Give Investors a New Perspective

Andrew Brady of SquareWell pens an opinion piece for Board Agenda. The UK’s Financial Reporting Council (FRC) has recently provided a list of ice-breaker questions for prospective engagements for investors to broach when meeting with an Audit Committee Chair. The questions look to reaffirm established lines of enquiry regarding significant issues relating to the financial statements, and the Committee’s role in oversight of principal risks; however, the FRC encourages investors to stretch their questioning to non-financial risks (such as, climate and cyber, but other material risks as well), and the effectiveness of the external audit, amongst other areas.

Quizzing Audit Committees on these issues allows an investor to dig deeper into the confidence they have in corporate strategy, the trust they have with the board oversight, and a better understanding of the inputs that drive ESG-era investment decision making processes. Improved understanding, trust, and alignment between investors and corporate boards is a potential outcome, however, the necessity for engaging with companies on this, as with other engagement efforts, is subjective. Those companies with more complex reporting, or complicated value chains, will be higher up on the priority list for these style of engagements, and it is easy to see how (in the case of a bank, for instance) engaging with the Audit Committee will give a deeper and differentiated view.

Engaging with the Audit Committee, therefore, presents an opportunity for the company as well. By showing the alternative perspective, companies may be able to better align investors with their view, consolidating the support for their strategy, their management of risk, and the integrity of their reporting.

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