8 top priorities for audit committees

Jennifer A. Knecht, David L. Kral, Mandi Simpson

Get our audit specialists’ take on what your audit committee should focus on right now.

Audit committees need to pay attention to a variety of topics, including risk management, financial reporting and disclosure, and cybersecurity – and also understand how the organization is addressing these topics. But how have the financial fallout and consequences of the pandemic, inflation, labor challenges, and a potential economic recession broadened or changed these core responsibilities? What else should audit committees focus on in the current environment? It can be hard to keep track – so here are eight top priorities for audit committees to consider.

1. Environmental, social, and governance (ESG) strategy

Between increased regulatory scrutiny and growing investor and customer expectations, ESG standards are changing quickly. Creating a viable ESG strategy is more important than ever if companies want to keep up with – and even get ahead of – these changes.

Ask management: Has company leadership had meaningful discussions about ESG, including at the board level? If so, have plans been put into action?

2. Regulatory compliance scrutiny

The regulatory environment is changing quickly, and it can be hard for audit committees – and organizations – to keep up with what these changes mean and how to implement them. In addition, with these changes comes an increase in scrutiny around regulatory compliance.

Ask management: How is the organization monitoring and making changes to address the current and future compliance environment?

3. Digital transformation trends

The world around us is changing quickly, and while the pandemic might have accelerated digital transformation and innovation, there’s no going back. From mass adoption of working from home, online banking, and virtual consultations to lower demand for in-person experiences, it’s vital that businesses keep up with the changes. And it’s important for audit committees to understand the implications of these changes – both now and in the future.

Ask management: Is company leadership aware of the trends in digital transformation, including how they could affect both daily operations and long-term strategies?

4. Scenario planning improvements

Audit committees need far better scenario planning, as the scramble to respond to the pandemic and its economic fallout made starkly clear. Now, in the face of significant changes in interest rates and inflation, businesses need robust scenario planning that takes an “outside-in” approach to the potential impact of macroeconomic trends.

Ask management: Is the organization using scenario planning to identify and remediate identified weaknesses? Is it stress-testing assumptions?

5. Financial reporting changes

The current reality is anything but business as usual – and has been for quite some time. How will the operational and financial implications of the Inflation Reduction Act, inflation itself, and a potential economic recession be reflected in financial statements? Triggering events, such as deteriorating macroeconomic conditions or loss of customers, might result in impairment of inventory; property, plant, and equipment; intangibles; or goodwill that need to be recorded.

Ask management: How have the changes from the Inflation Reduction Act, inflation itself, and a potential economic recession affected the company’s financial reporting process and internal controls?

6. Cybersecurity priorities

The pandemic prompted a dramatic and sudden switch to remote work for many organizations – and while some are implementing back-to-office plans, that switch is unlikely to fully reverse. Many companies had to modify firewalls and other security measures hastily to accommodate work-from-home environments, but now they need to consider how to evaluate and strengthen those measures.

Ask management: How does remote work affect information access, data security, and cybersecurity risk? What vulnerabilities might be exposed, and do internal controls need to be reevaluated?

7. Business resiliency planning

Companies need long-term strategies for resilience. The largely unanticipated economic shock of the pandemic is still affecting many businesses – and now, they’re also faced with challenges like inflation, labor shortages, a potential economic recession, and changing customer decision-making habits.

Ask management: Are the company’s business resiliency plans comprehensive, updated, and able to be modified quickly?

8. Cost-cutting implications

While some companies still are feeling the aftereffects of the pandemic, most currently are facing rising inflation and a potential recession. Organizations considering cost-cutting measures to combat these new challenges should consider how those measures might affect the controls process, including which roles are vital to the process and how the process might need to change.

Ask management: How is the company evaluating the controls process implications of short- and long-term cost cutting?

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Crowe accounting professionals have a deep understanding of the roles and responsibilities of audit committees across industries. We can help you identify how current economic conditions are affecting financial reporting and disclosure, internal controls, compliance, and risk management oversight and duties. Contact us to learn more about what audit committees should focus on, today and over the long term.