With unexpected bombshells in today’s day and age like a 2-year pandemic or an actual geographical conflict (i.e., the Russia-Ukraine war), stakeholders rely solely upon the Audit Committee to provide clarity on the company’s operations.
But what are Audit Committees and what role does a CFO play in it?
With the intricacies in today’s finance world, auditing an organization remains one of the most complex processes. A ton of regulations by statutory bodies like SEBI & MCA doesn’t make it any easier either. Ensuring the independence of the auditors in such a scenario is critical. This is where Audit Committees come into the picture! They act as a channel of information supplied to the auditors and in turn, sheathe the auditors from the pressures of the management. It is mostly composed of the company’s board of directors (including non-executive directors) and is majorly responsible for the:
- Reliability of the entity’s financial statements and disclosures.
- Effectiveness of the entity’s internal control and risk management systems.
- Compliance with the entity’s code of business conduct and legal and regulatory requirements.
- Independence, qualifications, and performance of the external auditors.
- Performance of the internal audit activities.
It is the CFO’s responsibility to make sure that the audit committee can carry out their work independently and is equipped with all the information they need to function in the most effective manner. It is the CFO’s job to ensure that all the roadblocks from the Audit Committee’s way is removed, for them to become the guarantor of the organization’s financial transparency.
Therefore, the audit committee has a few non-negotiable expectations from today’s CFO. Read on to find out what they are.
Expectations from the CFO
- Shock resistant
Although uncertainties and contingencies are part and parcel of running any business, the audit committee would want the CFOs to take care of the avoidable issues and inform them if something out of the blue happens.
This can be done by building a healthy and transparent working relationship early in their dealings with the Audit Committee. CFOs must ensure that they have regular communications and interactions to discuss all recent developments in the organization. It is recommended that these interactions should be in addition to the mandatory Audit Committee meetings.
- Right hand of the CEO
Many CEOs seek support from their CFO as their strategist and catalyst who can align the financial strategy to business strategy for the growth and development of the business.
The Audit Committee often looks at the CEO-CFO partnership to measure how well the top leadership team works together.
- Looking out for Future Talent
The Audit Committee needs to be assured that risks are being managed and the future of the organization is in dependable hands.
Which is why it becomes the responsibility of the CFO to align its key personnel with the long term goals of the organization and orient them to achieve the same. I’ve elaborated briefly on what role a CFO plays in the Talent Development of the organization and how they can resolve the ongoing “Crisis of Mentoring” in my latest blog on “The Modern CFO“.
- Window into the organization
According to a recent survey, the CFO is the most valued professional within the leadership team, therefore it becomes even more important for the CFO to deliver what is exactly expected from them.
Audit committees thus expect to get enough facetime with the CFO for regular agenda-based meetings, and not just to present the findings of the audit.
- Follow up Driver
After the Audit Committee-Management meetings, the CFO is almost always the point of contact for the Audit committee chair. They should have a follow-up check list and give updates on how the matters discussed in the meetings are being resolved.
Audit Committee must be the Action Taker
Back in November 2021, we all know how Amazon India wrote to the Audit Committee of Future Retail Limited, bringing to light alleged financial irregularities, so that they could be investigated and examined in detail in the interests of their shareholders, creditors, bankers etc. Thereafter, the Audit Committee directed an investigation by an independent third-party expert.
What happens when the Audit Committee fails to dig deep?
In February 2022, Price Waterhouse Coopers (PwC) flagged the the Audit Committee of Reliance Home Finance Limited on the issue of divergence of funds by promoters and management. This led to the intervention of SEBI which barred Anil Ambani from dealing in the securities market.
This is why it is important for CFOs to treat the Audit Committee as a partner with whom they can discuss the future and direction of the company,
At Contetra, we work with CFOs and senior finance leaders who are possibly the busiest folks in the industry to put more time back in their day while making sure that they are able to provide clear direction to all their stakeholders.
We hope you found this to be an insightful read. Follow me on LinkedIn: for more content about #internationalGAAP #IFRS #BusinessFinance #FPA #FinanceStrategy