Brief Updates on Corporate Audit Committee and Auditor Oversight

Guest post by Daniel L. Goelzer
Board Member, Sustainable Accounting Standards Board and Co-Founder, The Audit Blog

When it Comes to the Ability to Deal with Risk, Boards are More Confident, But Less Well-Informed, Than Management

A new study from the Institute of Internal Auditors (IIA) raises questions about how well-informed boards are about the risks facing their company and whether directors tend to be unrealistic about the company’s ability to handle those risks.

In OnRisk 2020: A Guide to Understanding, Aligning, and Optimizing Risk, the IIA concludes that “Boards are significantly overconfident when it comes to addressing the thorniest issues facing organizations today. Board members have greater confidence in their organizations’ ability to manage key risks than members of management.”

The IIA attributes this over-confidence to the “incomplete or misleading” nature of the information concerning risk that boards receive information from management, along with the failure of directors to ask critical questions.

Sustainability Reporting Continues to Grow—Both Inside and Outside SEC Filings

Two recent reports provide snapshots of the growth of public company sustainability or ESG disclosure:

  • From NACD: ESG Risks Trickle Into Financial Filings, an October 21 item in BoardTalk, the blog of the National Association of Corporate Directors, analyzes ESG disclosure in the Risk Factors and MD&A sections of Form 10-K filings of companies in the Russell 3000 index.

This research found that, in 2019, 66 percent of companies in the Russell 3000 Index discussed ESG risks in their Form 10-K.

  • Separately, a report issued by the Governance & Accountability Institute found that, while 60 percent of the Russell 1000 published sustainability reports in 2018, only 34% of the smallest half of the Russell 1000 issued such a report.

The “second 500” sectors with the highest percentages of companies that release a sustainability report are Utilities (82%, Materials (63%), and Consumer Staples (53%).

The analysis is at: https://www.ga-institute.com/press-releases/article/flash-report-60-of-russell-1000R-are-publishing-sustainability-reports-ga-2018-institutes-in.html

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Note:  These items are highlights from the Audit Blog. Daniel Goelzer is co-founder; see https://medium.com/the-audit-blog

Recent posts on the blog include –
• The Impact of Disclosing Engagement Partner Identity: No Clear Answer (Dan Goelzer, November 7, 2019)
• Would Auditing Improve if the PCAOB Brought More Enforcement Actions? (Dan Goelzer and Tom Riesenberg, September 16, 2019)

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Daniel Goelzer is a retired partner of the Baker McKenzie Law Firm (in Washington DC offices) and Board Member, SASB, serving as Chair of the Service Sector Committee. He was Acting Chair and Board Member, PCAOB for almost a decade (appointed by the SEC as founding member).

Contact information:
Daniel L. Goelzer – Bethesda, MD 20816

301.775.8692 (cell)
dangoelzer@gmail.com
@dgoelzer (Twitter)

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