Archive for the ‘Audit’ Category

How Can Companies Improve the Usefulness of Disclosures to the Investor Community?

May 1st, 2014 | By

In March, the National Association of Corporate Directors, KPMG’s Audit Committee Institute, and Sidley Austin co-hosted the latest meeting of the Audit Committee Chair Advisory Council. Delegates were joined by analysts from Moody’s Analytics and Morgan Stanley, as well as leadership from Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB). The group discussed how investors and ratings agencies use financial statements in their assessment of corporate performance, the audit committee’s role in helping to ensure the quality of the company’s financial disclosures, and ongoing FASB and PCAOB projects.

As detailed in the summary of proceedings, the discussion addressed several factors that can diminish the utility of financial disclosures, including high volume as a result of duplication, “boilerplate” disclosures, and the timing of releases. Dialogue yielded the following suggestions for how companies might improve the usefulness of disclosures to the investor community:

  • Expanded reporting at the business unit, segment, or geography level. “We want to see performance data at a more granular level in order to develop a view of the company’s future growth prospects.”
  • Providing data that shows trends over multiple years. “Understanding trends over 2, 3, 5 years tells a fuller story. One of my pet peeves is when a company’s MD&A includes comparative data only from the previous year. Investors want more context.”
  • Using more charts and visuals. “Visuals can deliver a wealth of information using very little real estate in the financial statement.”
  • Including more forward-looking disclosures. “Investors and rating agencies are trying to assess and project future valuations of the company. I’d be in favor of more safe harbors [in this area] if it would encourage companies to offer more forward-looking information.”

For the full day’s discussion and proposed council action items, click here to read the summary of proceedings.

Trust but Verify: The Power of Skepticism in the Boardroom

October 25th, 2013 | By

Bribery and corruption risk continue to be big issues for companies—especially with the increasing number of reported incidents and regulatory enforcements in recent years. This panel of audit, legal, and governance experts discussed cultural factors that can breed fraud, and they also discussed what directors should know about combatting fraud. The experts outlined steps that boards can take in their oversight role, as well as the importance of that role in transactions.

Highlights:
1. Tone at the top is paramount. The CEO sets the tone for the company, and the board should be aware of the specific tone that has been set. Directors should attend management meetings from time to time, make note of any problem areas, and reiterate to the company that the board is watching. The ethics and compliance leader should report to the board periodically, as well. Sometimes, the presence of the general counsel at a meeting can help deter fraud.

2. The internal audit and compliance teams need to coordinate on who will be covering which issues. This is not to make them competitive with one another, but instead will help ensure efficient and complete coverage.

3. Boards need enough time to give ample consideration to significant transactions. For example, does a transaction fit in with the strategic direction the company wants to take? Boards should have a similar thinking in regard to the divestment of current business, and must be fearless in exercising responsibility in this area.

Speakers:
Andrea Bonime-Blanc
CEO and Founder, GEC Risk Advisory LLC

Cynthia Fornelli
Executive Director, Center for Audit Quality

Michele J. Hooper
President and CEO, The Directors’ Council

Vikramaditya Khanna
Professor, University of Michigan Law School; Director, Directors’ College for Global Business and Law, University of Michigan

This summary provided by PricewaterhouseCoopers.

In Conversation with Laban Jackson

October 13th, 2013 | By

JPMorgan Chase & Co. has frequently made headlines since news of the London Whale broke. In a candid interview with Jeffrey M. Cunningham, managing director and senior advisor of the National Association of Corporate Directors (NACD), Director and Audit Chairman Laban Jackson shares how the company is navigating current challenges and preparing for future ones.

The London Whale Investigation

Jackson noted that one of the root causes of the London Whale was tied to culture. “The culture totally broke down,” he explained. “The real culture at JPMorgan–or at any great company–is if you have a problem and you raise your hand, it becomes everyone’s problem. If you don’t raise your hand, it’s your problem.”

On CEO Jamie Dimon

“Jamie Dimon is the best manager I’ve ever seen, and I’m old,” Jackson said. “He has absolute integrity.” Jackson went on to note that Dimon is human and has flaws as every human being does.

“One thing to do as a director–and I didn’t learn this early enough–the first job you have is to get the CEO right. The second is to get the next CEO right,” Jackson explained. “But while you have that CEO, figure out his or her flaws and help them with them.”

Ramifications of the London Whale

The board fired five people and clawed back $100 million and cut the CFO and CEO salaries in half. “We wanted to get the respect back of the people at the company,” Jackson said.

When asked by the Council of Institutional Investors if JPMorgan had done enough, “We said well, we can’t shoot ‘em,” Jackson said.

Big Enough to Succeed?

In a business where the motto is often “go big or go home,” laws and regulation play key roles in ensuring companies are operating in an effective manner. Some regulations, however, may be difficult for companies that do not have the same scale as JPMorgan to comply with.

“We move trillions [of dollars] a day in and out of JPMorgan in 156 countries,” Jackson said. “I don’t know many companies that can do that. If big banks are broken up, I don’t know who can do this.”

Around the World

Jackson spends several weeks a year visiting JPMorgan offices across the globe and meeting with regulators. He notes that he has started meeting with up-and-coming JPMorgan employees: “I learn so much from them–it has been a wonderful thing for me.”