FOR IMMEDIATE RELEASE Contact: Bob Wade
(May 20, 2009) KPMG LLP
BOARD MEMBER CONCERNS ABOUT FINANCIAL CRISIS
LEADING TO DEEPER OVERSIGHT, SAYS KPMG/NACD SURVEY
Directors Uneasy About Information Quality, More Hands-on
NEW YORK, May 20 – Economic conditions are driving directors to recalibrate the way they work amid concerns about financial crisis risks and the quality of information they’re receiving, according to a joint survey by KPMG’s Audit Committee Institute (ACI) and the National Association of Corporate Directors (NACD). Three out of four audit committee members say they have increased their “hands-on involvement” with management, and are reassessing risk management and oversight as a result of the economic crisis.
“Board oversight is very different from what it was a year or two ago—and it has to be. The velocity of change and risk demands it,” said Henry R. Keizer, Global Head of Audit – KPMG International, and U.S. Vice Chair - Audit, KPMG LLP. “More than ever, directors need access to the right information, at the right time, from the right source.”
Audit committee members identified risks related to the financial crisis and oversight of risk management as their top two agenda priorities for 2009, according to the annual KPMG/NACD survey.
In addition, directors expressed concerns about the quality of information they are receiving, particularly information related to the financial risks posed by the economic crisis (22 percent), fraud risks (22 percent), risks related to tax issues (30 percent) and information technology risks (48 percent).
Mary Pat McCarthy, executive director of ACI and Vice Chair at KPMG LLP, said that boards are working with management to improve the quality and usefulness of the information they receive.
“This focus on information quality, including identifying the critical information needed and the format it should be presented in, is part of the broader recalibration that’s taking place in governance and oversight,” McCarthy said. “As board oversight becomes more focused and intense, directors are insisting on better information about the business.”
Respondents to the KPMG/NACD survey also said they are focused on whether management has a holistic view of risk, if risk oversight responsibilities are clearly delineated, if stress-testing of risk assumptions is rigorous enough, and how the culture and incentives impact the company’s risk profile.
“There’s clearly recognition by directors of the need for more frank and open discussions about risk, in good times and bad,” said Kenneth Daly, NACD’s president and CEO. “Having these discussions and asking the right questions requires directors to have a solid understanding of the business. It’s all about asking that second and third follow-up question.”
Describing the more “hands-on” approach to oversight they’re seeing, McCarthy and Daly note that boards and committees are meeting more often—both formally and informally—and they’re probing management more deeply on key issues and risks facing the organization. They want a better understanding of the business and the people who manage it.
While 95 percent of audit committee members rated their committee as effective or very effective, many also said key oversight processes could be improved:
· Approximately one-third of audit committee members said agendas need to be better prioritized, with less “box-checking.”
· Two-thirds say more meeting time should be devoted to discussion and questions versus listening to presentations.
· Board members also said pre-meeting materials should be more timely and concise, with more benchmarking and less extraneous information.
Other key survey findings include:
· Notwithstanding the financial reporting challenges posed by the economic crisis, audit committee members generally expressed higher levels of confidence in their oversight of “traditional” financial reporting matters, such as financial statement issues, disclosures, internal controls, and legal/regulatory compliance.
· Because of the financial crisis, information technology (IT) risk fell as an agenda priority for 2009 (compared to 2008), though survey respondents said IT risk should get more agenda time, and is the issue they are least effective in overseeing.
· More than half of the respondents expressed concern that oversight responsibilities for significant business risks facing the company are not clearly delineated among the full board and its standing committees.
· Half of the respondents are concerned that the audit committee’s evaluation process for the CFO may not be adequate; similarly, 25 percent expressed concern about evaluation of the internal audit function.
The 5th Annual Public Company Audit Committee Member Survey was conducted between November 2008 and February 2009. It reflects responses from approximately 280 audit committee members.
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International’s member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.