09 Jan. 2019 | Comments (0)
(This post is part of The Conference Board Governance Center series on the job description of a corporate director from the perspective of various stakeholders. Quotes from this Q&A is highlighted in Just What Is the Corporate Director’s Job? Independent Auditors’ and Regulators’ Perspectives on the Board Member’s Job Description.)
Norm Prestage is a Senior Client Service Partner with EY in Chicago. He has served as the lead audit partner on some of EY’s largest and most complex clients and worked in EY offices in Boston, Providence, Chicago, Bentonville, as well as in Germany and the Netherlands. He joined EY in 1987.
He recently spent some time talking with Gary Larkin, the author of The Conference Board report, about the job description of a corporate director from the point of view of an independent auditor. What follows are his thoughts.
As an external auditor, how do you see the job of a corporate director in today’s business environment? How about the job of an audit committee member?
The expectations for directors seem to be very high and increasing from many sides. Directors are expected to possess a diverse a skillset and be objective. I feel like the best directors have a deep understanding of company strategy and risk profile, act as a sounding board for management, and are keenly aware of stakeholder concerns. It’s a really difficult job.
What is the makeup of an ideal audit committee?
In my opinion, the best audit committees include directors who bring different viewpoints and perspectives to the same issue. For example, a committee that includes a financial expert who has a great understanding of accounting and financial issues, an IT expert who understands the complexity of systems, an operations expert who has implemented strategy, and a business executive with real-world leadership experience often see issues from different perspectives, but together add a lot of value.
What role does the external auditor play in the job of a corporate director?
External auditors and directors often have a shared objective to understand financial statement risk and ensure that it is being appropriately addressed. Part of understanding financial statement risk is to understand business risk, so the external auditors and directors (at least those serving on the audit committee) work closely together to ensure the audit strategy addresses key business and financial risks. Beyond the audit committee, in my opinion, the external auditor can serve a useful educational role on risk management and the intersection of financial risk and business risk. Directors expect a good auditor to understand where business and financial risks intersect.
How do you define tone at the top? Who owns that, the board or management?
Tone at the top is the message that comes from the statements and actions of senior management regarding culture, expectations, and standards of conduct at an organization. It is often a shared message between management and the board, but mostly comes from the example set every day by management. Tone at the top is a key consideration in determining audit risk.
While it was mentioned at the roundtable that disclosure is the foundation of engagement between the board and shareholders, how do boards ensure that disclosure is not boilerplate?
In my experience, the best board members engage with management, the external auditor, and even third parties to ensure that a company’s disclosures are reflective of the specific facts and circumstances of the business. There is good dialogue to ensure disclosure goes beyond “boilerplate.”
Should the definition of the audit committee financial expert be redefined?
I would say we have a current definition that is broad but is adequate. The multinationals I represent have audit committees with a great level of financial expertise. I think you can lose that diversity of viewpoints if everyone is a CPA.
The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.