SEC official eyes work of accounting committees

A senior regulator has called for more information to be gathered to provide insight into improving the work of boards’ audit committees.

‘I encourage researchers to advance the understanding of the role of audit committees in fostering effective internal control over financial reporting, and the factors that strengthen or weaken audit committees’ effectiveness,’ SEC chief accountant Wesley Bricker told delegates at a recent Journal of Accounting and Public Policy conference. ‘Audit committees serve an important function in our financial reporting system.’

He described the key role of audit committees, their members’ education and minimum thresholds for expertise of their members in financial reporting and disclosure as well-researched areas. ‘Particularly after the Sarbanes-Oxley Act of 2002, academic research on audit committees has flourished, and studies consistently find the independence and expertise of audit committees are associated with enhanced financial reporting quality,’ he said. ‘[But] there continues to be interest in further ways to advance the consistency in effectiveness of audit committees in corporate governance for companies of all sizes.’

Accounting performance and compliance has taken on renewed importance over the past year as the SEC has signaled it has largely moved on from a financial crisis-related enforcement agenda to more emphasis on financial reporting.

The commission in July 2015 issued a concept release seeking input on understanding the types of disclosures about audit committees’ work related to their oversight of external auditors that might be beneficial to investors. As such, an area where academic research might be of interest is further work on the characteristics and skills of audit committee members that contribute to their effective oversight of financial reporting, Bricker said.

‘Studies could also examine the types of information that are informative to audit committee members in their oversight roles,’ he added. For example, academic research finds that book-to-tax differences can be a source of insight to potential earnings manipulation. ‘Would more attention by some audit committees on the disclosures of book-to-tax differences already in the financial statements facilitate additional insight and understanding of management’s financial reporting?’ Bricker asked.

This is part of governance and controls research, which includes looking at the processes and structures implemented by the board and management to inform, direct, manage and monitor the activities of a company’s credible financial reporting.

Areas of particular contribution include the means of promoting appropriate ethics, tone and values within a company; oversight of performance management and accountability; communicating information among the board, management and internal auditors and external auditors; and controls to manage risk and increase the likelihood that objectives and goals will be achieved, the chief accountant said.