For audit committees that could use a little help figuring out where to focus their priority attention, KPMG's Audit Committee Institute has published its annual “to do” list to help zero in on the most critical issues.

First and foremost, stay focused on the audit committee's most important task – financial reporting and related internal control risk, KPMG says. Audit committees need focused yet flexible agendas to keep an eye on several moving targets, namely persistent economic uncertainty, market volatility, ongoing cost reduction efforts, not to mention major shifts in public policy and regulatory activities. Committee members might benefit from management updates between regular meetings given the pace and importance of the changes taking place.

Audit committees need to keep a tight focus on the biggest moving targets in the company's financial statements – those areas relying on accounting judgments and estimates, such as fair value estimates, impairments, and assumptions underlying other critical accounting estimates. It's up to the audit committee to assure management has proper controls in place, and to get the external auditor's view on those trickiest areas. Equally important, audit committees need to keep track of major accounting changes that are on the horizon, most notably changes to converge U.S. accounting rules with international standards. KPMG also advises audit committees to step back and take in the big picture portrayed by the company's financial statements and disclosures to sense whether they adequately and accurately tell the company's story.

And then there's risk. Every audit committee should be keenly attuned to the company's risk with some specific questions in mind, KPMG says. What is the company's vulnerability to business interruption? And how prepared is the company to face a sudden crisis? How might technology change and innovation transform the business landscape, and therefore the company? Is senior management's view of risk consistent with middle management, business unit leaders, employees, analysts, critics or other third parties?

Finally, audit committee should pay close attention to regulatory environment and the impact it has on the company's compliance programs and business plans, especially the initiative at the Public Company Accounting Oversight Board to make auditors more independent, objective, and skeptical. Audit committees also should understand the company's most significant tax risks and how they are being managed.

Topics