In another session, speakers said threats such as cyber security and the effects of digital transformation on company operations and globalization, as well as dynamic financial reporting and regulatory frameworks, are prompting audit committee members to expand their purview.
"Financial controls interact with operational controls," said Jon Lukomnik, managing partner at Sinclair Capital LLC. "Not everything should be on the agenda of the audit committee, but where that line should be drawn varies by company. It's difficult to understand financial risk if you don't understand operational risk."
Charles H. Noski, audit committee chair for Microsoft Corporation, said one manifestation of the committee's broader role can be seen in the audit committee reports included in proxy statements. Until fairly recently, he said, most reports consisted of a few generic paragraphs outlining risks in general terms.
But in the last three years or so, helped by the committee's broader role and a greater willingness to communicate with shareholders, many reports have expanded to highlight the committees' function, accounting policies, how committees evaluate external auditors, compliance processes, and other important information.
"In the last handful of years, audit committees have decided this is the one opportunity we have to talk with shareholders, and to explain what we're doing to fill the role they elected us to do," Noski said. "We're trying to describe in a much richer way what we do and the judgments we make."
James Quigley, audit committee member at Wells Fargo, Hess Corporation, and Merrimack Pharmaceuticals, said audit committee reports have largely shifted beyond an emphasis on meeting the committees' regulatory requirements to issue a report.
"Most reports have moved away from being a pure compliance [driven] document, and I think investors are better served by that," he said.
Speakers also stressed the importance of a company having an effective corporate culture--not just in setting an effective tone at the top, but also in making sure line-of-business managers are committed to effective governance.
"When you serve on an audit committee, you have to understand the company's culture," said Nick Cyprus, audit committee chair of Digital Global Inc., and Readers Digest. "You need to evaluate the company's culture and commitment to transparency, and...