Internal Control over Financial Reporting
The audit committee can help in overseeing the prevention and detection of financial statement fraud by monitoring management’s assessment of internal control over financial reporting (ICFR). To oversee ICFR successfully, the audit committee must be familiar with the processes and controls management has put in place and understand whether they were designed effectively. The audit committee should work with management, the internal auditors, and the independent auditor to gain the knowledge needed to provide appropriate oversight.
Oversight of Financial Reporting and Internal Controls Leading Practices
- Understand accounting and financial reporting issues relevant to the company and how management addresses them, such as fair-value accounting and related assumptions.
- Anticipate and understand how pending financial reporting and regulatory developments may affect the company, and particularly its talent needs.
- Understand key controls and reporting risk areas as assessed by the independent auditor, the internal auditors, and financial management, as well as mitigating controls and safeguards.
- Increase oversight of corporate taxes, an area where high-risk and high-dollar decisions are made; the SEC has increased scrutiny in this area as a result of the significant judgment involved.
- Leverage the value of internal controls beyond compliance with the assessment and reporting requirements.
- Consider levels of authority and responsibility in key areas, including pricing and contracts, acceptance of risk, commitments, and expenditures.