Setting the agenda
The AC chair plays a critical role in focusing the agenda on what is important: quality financial accounting and reporting and effective internal controls. The AC’s rolling 12–24 month agenda should align with the responsibilities set forth in its charter while also allowing flexibility to address emerging issues.
- The initial draft of the agenda for each meeting is often prepared by the chief audit executive (CAE) and/or chief financial officer (CFO) for the AC chair, who works with them to finalize it and ensure that agenda items are ready for discussion.
- In preparing the agenda, many AC chairs:
- Start with priority topics, then add the required checklist items (not vice versa)
- Solicit input on the agenda from the CFO, CAE, and general counsel, and confer with the lead director to obtain his or her input
- Encourage members of the audit committee to provide input on the agenda.
- AC chairs often set aside “white space” time at the beginning of each AC meeting for the AC members to have one last look at the agenda (including time allocated to each item on the agenda) after members have had an opportunity to review premeeting materials.
- Many AC chairs set aside time at each meeting for the AC to take a “deep dive” into an important accounting policy, judgment, or estimate, a significant accounting development facing the company, or the company’s use of non-GAAP.
- Many AC chairs also request a summary of the company’s key accounting judgments and estimates at least annually.
- “Mission creep” is an important issue for ACs. A key role for the AC chair is to ensure that the AC does not take on too much responsibility beyond its core responsibilities and that committee members’ skills align with the responsibilities. Risk management may be one such responsibility.
- The AC chair may need to discuss with the lead director and nominating committee chair the possibility of shifting certain oversight responsibilities to another committee or to a new committee.
Making the most of audit committee meetings
The AC chair plays an important role in ensuring both the quality and timeliness of premeeting materials. For the committee to make the most effective use of its time together, all committee members should receive and review materials prior to the meeting—and make requests for additional information in advance—so that members can devote more time during the meeting to discussion.
- Copies of all presentations to be made at the AC meeting should be included in pre-meeting materials. The AC chair should limit presentation time and the use of PowerPoint.
- Most AC chairs specifically instruct management to assume that AC members have read all premeeting materials.
- An important role for the AC chair is to work with management to enhance the reliability of information flow to the audit committee—including premeeting materials, materials presented at the AC meeting, and other materials made available to the AC on a less formal basis.
Many AC chairs conclude each AC meeting with an executive session so that AC members have an opportunity to discuss important matters privately without management present. The AC may also choose to hold private sessions with the CAE, CFO, external auditor, and other senior executives who can provide valuable insight to the committee about the challenges facing the company.
- “Management risk”—i.e. the risk associated with management performance or failure to perform—is an important topic of discussion.