Tag: Audit committee


PCAOB Adopts Disclosure Rule

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess and Yafit Cohn.

On December 15, 2015, the Public Company Accounting Oversight Board (“PCAOB”) issued a new rule and related amendments to its auditing standards that require accounting firms to disclose, in a new PCAOB form, specified information regarding the engagement partner and other accounting firms that participated in the audit. [1]

The PCAOB’s New Rule

The PCAOB’s final rule requires accounting firms to disclose, on Form AP, Auditor Reporting of Certain Audit Participants, the following information for each completed issuer audit:

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Governance Challenges When Gatekeepers are “Chilled”

Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine, with assistance from Joshua T. BuchmanEugene I. Goldman, and Kelsey J. Leingang; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

An emerging governance challenge is the need to address the tension between the pursuit of legitimate corporate strategic goals, and the concerns of internal “gatekeepers” who perceive themselves at increasing personal legal risk for corporate wrongdoing. This challenge is a direct byproduct of new enforcement initiatives of the Department of Justice and the Securities and Exchange Commission, and other recent developments with respect to corporate officials.

The concern is that these developments may cause some gatekeepers and other corporate officials to be much more self-protective in performing their corporate and fiduciary responsibilities, to the possible detriment of strategic implementation. Attentive boards will acknowledge this challenge and engage its gatekeepers in an appropriate resolution.

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Ten Topics for Directors in 2016

Kerry E. Berchem is partner and head of the corporate practice group at Akin Gump Strauss Hauer & Feld LLP. This post is based on a summary of an Akin Gump publication authored by Ms. Berchem, Rick L. Burdick, Tracy Crum, Christine B. LaFollette, and J. Kenneth Menges, Jr. The complete publication is available here.

U.S. public companies face a host of challenges as they enter 2016. Here is our annual list of hot topics for the boardroom in the coming year:

  1. Oversee the development of long-term corporate strategy in an increasingly interdependent and volatile world economy
  2. Cultivate shareholder relations and assess company vulnerabilities as activist investors target more companies with increasing success
  3. Oversee cybersecurity as the landscape becomes more developed and cyber risk tops director concerns
  4. Oversee risk management, including the identification and assessment of new and emerging risks
  5. Assess the impact of social media on the company’s business plans
  6. Stay abreast of Delaware law developments and other trends in M&A
  7. Review and refresh board composition and ensure appropriate succession
  8. Monitor developments that could impact the audit committee’s already heavy workload
  9. Set appropriate executive compensation as CEO pay ratios and income inequality continue to make headlines
  10. Prepare for and monitor developments in proxy access

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Maintaining High-Quality, Reliable Financial Reporting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent Keynote Address at the 2015 AICPA National Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is a pleasure to be here to speak to you about our shared and weighty responsibility to maintain high-quality, reliable financial reporting. This audience—preparers, auditors, audit committee members, and their advisors—is a very important one for the SEC. Investors, issuers, and the markets all depend on the work you do and the judgments you make—and how well you do both. You, together with the standard setters and the regulators, have a vital stake in ensuring that our capital markets remain the safest and strongest in the world—and we all share the responsibility.

Key to our mutual success is maintaining high-quality reporting of reliable and relevant financial information that investors can use to make informed investment decisions. If there is even one weak link in the financial reporting chain, investors and the integrity of our markets suffer. We must all work together in order to fulfill the high expectations investors rightly set for financial reporting.

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Big Data and Analytics in the Audit Process

Ruby Sharma is a principal at the EY Center for Board Matters. The following post is based on a report from the EY Center for Board Matters, available here.

In today’s business environment characterized by constant disruption, slow growth and uncertainty, boards face more challenges than ever in creating a risk-aware corporate culture and establishing sound risk governance and controls.

In just the last few years, the terms “big data” and “analytics” have become hot topics in company boardrooms around the world.

For many, embracing big data and analytics is crucial to keeping their organization nimble, competitive and profitable. Board members need to understand the complexities and have a grasp of the issues surrounding these technology trends. Equally important, they should be prepared to ask the right questions of the executives in charge of big data and analytics initiatives.
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Reg SCI: Ready for Opening Bell?

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer. The complete publication, including footnotes, is available here.

Less than three months remain before the November 3rd, 2015 go-live date of Regulation Systems Compliance and Integrity (“Reg SCI”). While some impacted entities have made great progress toward compliance since the rule was finalized last December, many still have a great deal to do.

Reg SCI is a wide-reaching new regulatory regime aimed at improving the SEC’s oversight of the US securities market and the market’s operational stability. The rule applies to about 35 entities that make up the core of the market’s technological infrastructure (“SCI entities”).

Perhaps the most pressing activity for SCI entities is preparing for the completion of their first annual review by December 31st of this year. This annual review must be performed by the entity’s “objective personnel”—i.e., people who were not involved in the development, testing, or implementation of the relevant systems (or involved in the Reg SCI compliance program itself). Many SCI entities are working to assemble teams of such personnel to carry out the review, which will include detailing the state of the entity’s compliance and identifying needed remediation.

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SEC and PCAOB on Audit Committees

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, Jack B. Jacobs and Thomas J. Kim.

Public company counsel and audit committee members should be aware of recent activity at the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) that could lead to additional regulation of audit committee disclosure and to federal normative expectations for how audit committees and their members behave.

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SEC Seeks Input on Enhanced Disclosures for Audit Committees

Michael J. Scanlon is a partner and member of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn alert.

At an open meeting held on July 1, 2015, the Securities and Exchange Commission (“SEC”) issued a concept release addressing the prospect of enhanced disclosures for audit committees. The much-publicized concept release is available here and requests comment on a number of possible changes to existing SEC disclosure requirements about the work of audit committees, focusing in particular on audit committees’ selection and oversight of independent auditors. The SEC said that it has issued the release in response to views expressed by some that current disclosures may not provide investors with sufficient information about what audit committees do and how they perform their duties. The release seeks feedback on whether certain audit committee disclosures should be added, removed or modified to provide additional meaningful disclosures to investors.

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Governance Challenges Arising From “Corporate Cooperation” Concepts

Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine, with assistance from Joshua T. Buchman and Kelsey J. Leingang; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

The current Department of Justice emphasis on “corporate cooperation” in the context of government investigations creates the potential for significant tension to arise between governance and executive leadership, which potential should be recognized and addressed proactively by the board.

The DOJ Criminal Division has, with notable frequency this spring, sought to increase public transparency as to the process it applies when making a decision with respect to corporate prosecutions. A principal goal of DOJ’s public effort is to clarify the parameters it considers in deciding how to proceed when made aware of alleged corporate wrongdoing. This goal includes making the value of cooperation, and the consequences of noncooperation, more clearly apparent to corporations and their advisors. [1]

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Audit Committees: 2015 Mid-Year Issues Update

Rick E. Hansen is Assistant Corporate Secretary and Managing Counsel, Corporate Governance, at Chevron Corporation.

Board audit committee agendas continue to evolve as companies are faced with a rapidly-changing global business landscape, the proliferation of standards and regulations, increased stakeholder scrutiny, and a heightened enforcement environment. In this post, I summarize current issues of interest for audit committees.

The Audit Committee And Oversight

During her remarks at the Stanford Directors’ College in June 2014, SEC Chair Mary Jo White observed that “audit committees, in particular, have an extraordinarily important role in creating a culture of compliance through their oversight of financial reporting.” [1] Since then, various Commissioners of the SEC and its Staff have reinforced this message by reminding companies of the audit committee’s duties under federal securities laws to:

  • oversee the quality and integrity of the company’s financial reporting process, including the company’s relationship with the outside auditor;
  • oversee the company’s confidential and anonymous whistleblower complaint policies and procedures relating to accounting and auditing matters; and
  • report annually to stockholders on the performance of these duties.

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