One-third of the 1,800 audit committee members around the world who participated in a KPMG survey said they could do more to understand the key assumptions that lie beneath management's accounting judgments and estimates.

In fact, less than half of those surveyed said they are satisfied that audit committees devote adequate agenda time to discussing the quality and consistency of nonaudited financial information. They generally worry about ongoing pressures -- like meeting unrealistic budget targets or analysts' earnings estimates and forecasts -- that pose significant risk to the integrity of financial statements. Audit committee members are being nudged on various fronts to up their game in understanding financial statements and evaluating auditors.

Just 80 percent of audit committee members said their company's annual and quarterly reporting will present a fair picture of the company's position, but only 74 percent said the picture will be accurate, and only 62 said it would be comprehensible to readers of financial statements.

Dennis T. Whalen, partner in charge and executive director of KPMG's Audit Committee Institute in the U.S., says he results suggest companies are getting more serious about corporate governance. “Corporate governance is strengthening almost in front of our eyes,” he says. “It's clear to me that audit committees, financial management, external auditors and the like are focused on understanding the importance of independence and quality.” Whalen says the pace of technology and the complexities of doing business globally continue to raise the bar for risk management and oversight. The survey results suggest directors want better information about key risks.

Looking at risks more broadly, 45 percent of audit committee members said their company's risk management program needed “substantial work.” Only one-fourth said they are satisfied that management is effectively managing risks to the company's plan for growth. When carving U.S. audit committee members out of the global totals, 47 percent said their companies had implemented risk management systems but they still required substantial work. Nearly 30 percent said they are not satisfied with their company's readiness to face a crisis or its response plan.

As for risks to the brand, less than half of all respondents believed their company's governance activities were focused on the greatest risks to the company's brand and reputation. The results for U.S. audit committee members were on par with their global counterparts.

Topics