The Board of Directors and Audit Committee Guide to Fiduciary Responsibilities: Ten Crtical Steps to Protecting Yourself and Your Organization

by Sheila Moran, Ronald Kral

Overview

You took the highly coveted position on the board or audit committee--now it’s time to figure out what you’re doing. And with SEC scrutiny at an all-time high, there is little room for growing pains. Boards and audit committees can now be held liable for acts of fraud and other corporate malfeasance even if they had no knowledge of wrongdoing in the organization.But relax! This comprehensive and practical guide greatly simplifies complex corporate governance standards, while mitigating the risks involved in the arduous work and increasing dramatically the positive effect over the enterprise that motivated you to take the position you did. Inside these essential pages, discover 10 crucial steps every governing body should take, including:• Cultivate independence • Build a balanced team • Address stakeholder concerns • Approach risk proactively • Spearhead fraud deterrence initiatives • And moreYou should be commended for taking on the duties you have, not intimidated. With this invaluable resource by your side, you can learn how best to satisfy the requirements of board service while also protecting yourself, the other board members, and the organization you have committed to lead to success.

Product Details

ISBN-13:	9780814431672
Publisher:	AMACOM
Publication date:	07/21/2013
Sold by:	HarperCollins Publishing
Format:	eBook
Pages:	240
File size:	2 MB

About the Author

SHEILA MORAN, CPA, CFE is CFO at Professional Power Products and serves on the faculty of the Association of Certified Fraud Examiners.
RONALD KRAL, CPA, CMA, CGMA is managing partner at public accounting firm, Candela Solutions LLC.

Read an Excerpt

From the Introduction

The audit committee is responsible for overseeing internal and external audit functions, financial reporting, and disclosure. Any publicly traded company in the United States listed on a stock exchange must maintain a qualified audit committee whose members consist of independent outside directors, and disclose if they have at least one financial expert, or otherwise, to explain why they do not. The audit committee is the most commonly referred to standing committee of the board—and for good reason: This is the group of individuals that ensures primary oversight of an organization’s financial reporting process and internal controls. As the board committee that is assigned primary responsibility to protect investor interests, the audit committee is a key component of the corporate governance structure. Yet failures and weaknesses in corporate governance arrangements are commonly cited as being behind business catastrophes, including the financial crisis of 2007–2008 that brought the world to the brink of economic chaos.

Boards of directors and audit committees must do all they can to ensure that proper corporate governance strategies are in place, that transparency is embedded in the organization’s culture, and that financial reporting processes are followed to the letter. Successful board and audit committee members must:

• Understand and satisfy regulatory and legal expectations of board service.

• Equip themselves with tools to direct both internal and external auditors.

• Learn how to identify the leading financial reporting distortions.

• Find out how to build an effective team as a board and audit committee.

• Know what to ask when invited to join a board or committee.

• Protect stakeholder interests by reducing organizational exposure to adverse events through risk-management and fraud-deterrence activities.

• Prepare for bad news with a crisis media-action plan.

• Balance stakeholder interests concerning executive compensation and employee relations.

• Explore the effects of management influence over board oversight duties.

The Board of Directors and Audit Committee Guide to Fiduciary Re­sponsibilities provides specific guidance that helps committee members satisfy the requirements of serving as board members while protecting themselves and their organizations. It offers practical advice to anyone who wants to fulfill his or her duties without adverse legal, reputational, or financial repercussions. Readers will find insight and actionable recommendations regarding the audit committee’s role in management and audit oversight.

The book boils down the voluminous, highly technical guidance provided to board directors into ten easily understood and achieved action steps:

1. Nominate independent directors

2. Establish a culture of action

3. Evaluate the audit committee

4. Direct the external audit

5. Scrutinize the financial statements

6. Leverage internal audit and outside resources

7. Satisfy regulators and other stakeholders

8. Address risk proactively

9. Spearhead fraud-deterrence initiatives

10. Expect the unexpected

These ten actions should not be thought of as discrete, sequential steps. Rather, they cover essential topics that, when performed to­gether, provide a composite set of governance strategies that give audit committee members and board directors the necessary peace of mind to know that they are fulfilling their at times daunting responsibilities. Each of these steps is equally important, with no consideration of value implied by the order in which they are presented.

Good governance by the audit committee is a game of endurance. It requires a systematic approach that must be continually updated and monitored to address emergent threats. As a director, you can be sure that scrutiny of the execution of director and audit committee duties will continue to increase in direct proportion to the level of the public’s distrust of financial reporting.

This book presents an authoritative, reliable framework that audit committee and board members can follow to ensure that they are fulfilling their fiduciary responsibilities in a responsible yet efficient manner. By following the steps outlined, audit committee members can protect themselves and their fellow directors, as well as the company’s reputation and stakeholder interests—most importantly those of shareholders.

•

Excerpted from THE BOARD OF DIRECTORS AND AUDIT COMMITTEE GUIDE TO FIDUCIARY RESPONSIBILITIES by Shiela Moran and Ronald Kral. Copyright © 2013 by Shiela Moran. Published by AMACOM Books, a division of American Management Association, New York, NY. Used with permission. All rights reserved. http://www.amacombooks.org.

Table of Contents

Contents

Introduction  1

CHAPTER ONE: Nominate Independent Directors  6

Nominating Committee Perspective  6

Candidate Perspective  15

CHAPTER TWO: Establish a Culture of Action  18

Expectations of Audit Committees  18

Essential Audit Committee Proficiencies  22

CHAPTER THREE: Evaluate the Audit Committee  28

Why Should Evaluations Be Considered?  28

Who Is Best Positioned to Conduct the

Evaluation?  30

When Should Evaluations Be Performed?  31

What Should Be Evaluated?  32

How Should the Evaluation Be

Performed?  34

CHAPTER FOUR: Direct the External Audit  36

The External Audit Process  37

Potential Roles of the Auditor  45

Hiring, Evaluating, and Replacing the

External Auditor  47

CHAPTER FIVE: Scrutinize the Financial Statements  53

Types of Financial Misstatements  53

Governance Protocols  61

CHAPTER SIX: Leverage Internal Audit and Outside Resources  87

The Internal Audit Mandate  87

Internal Audit Oversight  89

Internal Audit Administration  97

Signs of an Ineffective Internal Audit

Function  100

CHAPTER SEVEN: Satisfy Regulators and Other Stakeholders  104

Regulators  105

Other Stakeholders  121

CHAPTER EIGHT: Address Risk Proactively  124

Risk-Management Frameworks  125

Risk Identification  126

Risk-Ranking Tools  128

Risk Response  132

Reporting Risk  137

Risk-Assessment Follow-Up  142

CHAPTER NINE: Spearhead Fraud-Deterrence

Initiatives  148

Types of Fraud  149

Fraud-Deterrence Tools  163

CHAPTER TEN: Expect the Unexpected  186

The Need for Crisis-Management and

Crisis-Media Plans  186

Board-Level Fraud Response  191

The Need for CFO and CAE Succession

Plans  201

Conclusion  205

Forty Key Action Items  205

Notes  213

Index  223