Audit committee: too much information?
An audit committee's role is not to satisfy investors' desire for more information
Investors generally have a thirst for information. Currently one of the areas
being explored is whether the audit committee should provide more information
about the audit close process.
Investors have expressed a desire to know more about the work of the audit
committee, in particular, the subjective areas discussed by the finance
director, auditor and committee in terms of determining how the accounts have
been prepared.
Investors feel that such information would provide a view as to how and where
the earnings figure finally alighted on sits within an acceptable range. This
may be understandable, but from the audit committee perspective is it the body
that should be providing such information?
It goes back to what the role and function of the committee should be. It is
not a shareholders’ committee but a sub-committee of the board, and a unitary
board at that. It follows that any information regarding the company’s accounts
should come from the company itself.
In terms of discussing any details of accounting for the company’s
performance, all information should probably come from the executive. Also,
separate reporting by an audit committee, or its chairman, to a distinct group
of investors might fall foul of insider trading regulations.
The committee has responsibility to oversee the financial close process and
audit thereof, but this is on behalf of the whole board which ultimately takes
responsibility for what is presented. Any further information about that process
and the conclusions drawn should form part of the communication between the
company and the shareholders, rather than through any other route. This is,
after all, what stewardship reporting is all about.
The Market Participants Group, taking forward recommendations arising from
the FRC’s consultation, has suggested increased disclosures on the issue of
auditor choice. So it is likely that the committee reports will have some
increased disclosures, but not more financial information.
The view is that the financial statements should stand on their own. As one
committee chair put it: ‘If there is an issue, then we properly direct attention
there. Rather than saying that it’s the role of the audit committee to say that,
it’s the role of the financial statements.’
One can’t help agreeing.
Gerald Russell is a senior partner at Ernst &
Young