As the economy recovers from the COVID-19 pandemic in 2021, audit committees are faced with new challenges in their oversight roles and responsibilities. The following four steps can help to ensure your committee’s effectiveness.
1. Focus your audit on the basics
As you finish with financial reporting for fiscal year 2020, it’s worth revisiting your goals and expectations, so you can direct the audit committee’s attention back to the basics. Your audit committee will be responsible for oversight in each of these key areas:
- Disclosures
- Financial reporting
- Internal Controls
- The company’s audit process
Ideally, each item on your audit committee’s agenda should relate to one of these key concerns.
2. Make an assessment of your audit committee’s composition
It’s also worthwhile to make a periodic assessment of the level of financial expertise each of your committee members possesses—and this is especially true if the group composition has changed recently. If your company is anticipating significant changes in the regulatory environment under the Biden administration, it might be the right time to add members with suitable qualifications to the audit committee. There should be at least one member of the audit committee who possesses in-depth financial expertise (and publicly traded companies have specific requirements for “financial literacy”).
In addition, many companies now believe that diversity is a strength, leading to better-informed decisions and fresh perspectives—and these companies are recognizing the value of adding racial and gender diversity to committees.
3. Evaluate your operational risk
The COVID-19 pandemic may have affected your company’s risk profile. You may have deferred capital investments to preserve cash flow, for example, or may have needed to temporarily cut staff.
However, decisions driven by the crisis could have a negative effect on your company’s long-term financial stability. The audit committee may want to ask management to review any major operational decisions made during the pandemic to determine if unnecessary risk has been created and whether adjustments need to be made.
Additionally, increased financial pressures on accounting staff and changes in your company’s operations may expose the company to increased fraud risk—while the shift to remote work could open your company to the threat of cyberattacks and theft of intellectual property. As such, it’s a good idea to ask internal auditors to commission an assessment of fraud and cyber-risk. You can significantly decrease the probability of losses occurring by proactively addressing these issues.
4. Consider possible disruptions in the supply chain
Certain customers and suppliers may also have been affected by the pandemic, especially if they’re abroad or located in states where COVID-19-restrictions have been placed on business operations. Your audit committee should verify that management has identified the company’s material relationships—and that it understands the potential operational and financial impact if these businesses file for bankruptcy or close.
Contact us today
As the economy recovers in 2021, your audit committee can improve your company’s performance by taking proactive measures. Contact us today—we can assist you in positioning your company to minimize risks and maximize value-added opportunities, both this year and in the future.