Tag Archive: auditing

SEC Leadership and Audit Committee Priorities for 2013

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In the midst of the general process to determine the next leader of the Securities and Exchange Commission (SEC), current Chairman Elisse Walter[1] spoke to NACD’s Capital Area chapter this week. The conversation covered a wide range of topics, from diversity in the boardroom to the sequester’s impact on the SEC.

A significant portion of the discussion focused on the auditing profession, including activity from the Public Company Accounting Oversight Board (PCAOB). Having served on the SEC’s staff in a variety of roles beginning in 1977, Walter has had a front-row seat to the evolution of auditing and oversight. From her perspective, although audit has improved in the years since Sarbanes-Oxley, the improvements have not been enough to meet the current environment. Walter also highlighted the utility provided by PCAOB’s new Auditing Standard 16: Communications with Audit Committees and the proposed changes to the auditor’s reporting model.

On mandatory audit firm rotation—another significant proposed rule from the PCAOB—Walter was less committed. While there are many pros and cons to the concept, she noted the potential impact was uncertain.

PCAOB member Jay Hanson has commented several times on the concept release. Without a causal link between an audit failure and the audit firm tenure, Hanson remarked that he could “not see how the Board could move forward on mandatory rotation.” Furthermore, “mandatory rotation would be extraordinarily difficult to justify through an economic analysis of its costs and benefits.”

Last year, NACD’s National Audit Committee Chair Advisory Council spearheaded an initiative to propose an alternative solution to mandatory audit firm rotation: the audit committee evaluation of the external auditor. On Wednesday—the advisory council’s first meeting in 2013—delegates reviewed the status of the project. Since NACD CEO Ken Daly’s participation in a PCAOB roundtable last fall—during which he presented the assessment tool—the evaluation form has been downloaded over 1,500 times.

While directors wait for the PCAOB to decide its next steps regarding mandatory audit firm rotation, the advisory council outlined areas it plans to focus on in 2013. These include:

  • The quality of information presented to the board from management. Delegates suggested dashboards that are board- rather than management-oriented.
  • Cybersecurity and emerging technologies. Cyberterrorism and new technologies, such as social media, present significant risks to companies—oversight of which is often assigned to the audit committee.
  • Oversight of big data. Increasingly, investors are using data found in sources other than the annual financial report to analyze and make trading decisions. In some cases, the markets have information about a company’s products and performance before the board. 

Produced with KPMG’s Audit Committee Institute and Sidley Austin, NACD’s National Audit Committee Chair Advisory Council will next meet in early June. For a summary of the council’s 2012 meeting, visit our Board Leaders Briefing Center.


[1] The Chairman’s views were her own, not those of the SEC.

Most Popular NACD Blog Posts of 2012

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Here are some of 2012’s most popular NACD Blog posts as measured by unique page views.

  1. Self-Reflection: Three Questions Boards Must Answer. Three essential questions drive the assessment process.
  2. PCAOB Weighs Pros and Cons of Mandatory Audit Firm Rotation. Alex Mandl, chairman of Dell’s audit committee, spoke on behalf of NACD at the PCAOB’s public meeting last March to share the director perspective.
  3. Five Boardroom Deficiencies: Early Warning Signals. At NACD’s Director Professionalism course in Charlotte, N.C., faculty member Michael Pocalyko listed the five boardroom deficiencies he has observed in almost every recent corporate failure.
  4. Undertaking an Honest Self-Assessment: Is Your Board Aligned? How boards conduct the assessments starting with the questions in post #1.
  5. Five Takeaways From Conference. The five takeaways from the 2012 Annual Board Leadership Conference, according to NACD’s Research team.
  6. Alphabet Soup: A Director’s Guide to Financial Literacy and the ABCs of Accounting and Auditing. Alexandra Lajoux’s guide to the seven roadblocks that impede understanding of accounting and auditing standards.
  7. An Update From the SEC. A mid-year update on SEC rules largely affecting the compensation committee.
  8. Five Guiding Points for Directors in the Digital Age of Corporate Governance. Former BD Chairman and CEO Ed Ludwig’s fundamentals for achieving sustainable long-term shareholder value creation.
  9. NACD Spearheads Alternative Solution to Mandatory Audit Firm Rotation. The collaborative effort to develop an alternative solution to PCAOB’s proposed rule mandating audit firm rotation.
  10. PCAOB’s Proposed Mandatory Audit Firm Rotation Misses the Point. NACD President and CEO Ken Daly on why mandating audit firm rotation will not necessarily improve auditor independence and objectivity.