Audit committee to CFO: can we talk? Audit committees want much from CFOs. Characteristics topping the list include integrity, honesty, knowledge of the business and industry and guts. Most of all, they want the CFO to communicate--the good news, bad news or in between.

• Author: Heffes, Ellen M.
• Position: BOARDS OF DIRECTORS - Chief Financial Officer

CFOs, who likely hadn't thought much about communications as they crammed in finance and accounting courses, are likely to be finding that one of the toughest parts of their current job is communicating with their board of directors. This is especially so post-passage of the Sarbanes-Oxley Act of 2002, as the CFO's role in reporting to the board has come much more under the spotlight. And boards, particularly audit committees, are asking--and expecting--more than ever of CFOs.

Directors on audit committees have always been expected to be capable, be prepared for meetings, ask good questions of the CFO, help with strategy to set risk-tolerance levels, etc. They still perform those functions. What's different now is that they, too, are discharging their responsibilities under a spotlight. The difference is not the responsibility, but rather the accountability. And, boards are looking to CFOs to fill the gaps.

As a certified public accountant, former CFO and CEO Gerald M. Czarnecki characterizes the CFO/audit committee relationship as having gone through a "sea change." Recalling when he was the CFO of a public company, he says his role "was a more dominant relationship with the auditor and a not-so-dominant one with the audit committee;" he was the primary contact with the external auditor.

Now, the audit committee has the dominant relationship with the accounting firm and the CFO has become a participant in the audit committee's activities, as opposed to the audit committee a kind of participant in the CFO's activities.

As someone who's served on boards for about 20 years (currently audit committee chair for three public company boards and chairman and CEO of Deltennium Group Inc.), Czarnecki says that previously, there was little interface between the CFO and the board. Today, "boards see the CFO as having a direct responsibility to the board," and look to the CFO to provide an added perspective on the company. He quickly adds this is not to be interpreted that the CFO is a "covert spy" on management.

Boards expect, he continues, "that the CFO recognizes that he or she is the eyes and ears of the board on financial matters, and should feel comfortable that they have a pipeline to the board." While there were some "tight" relationships in the past, he states, it is now much stronger.

Suzanne M. Hopgood characterizes the CFO/audit committee relationship as "a key relationship for the audit committee." Hopgood has served on boards for about 15 years, is president and CEO of business-consulting firm The Hopgood Group LLC and is also a member of the teaching faculty of the National Association of Corporate Directors (NACD). She currently serves as the financial expert on the audit committee boards of two public companies (Acadia Realty Trust and DHB Industries Inc.) and one private company (Newport Harbor Corp.), for which she expects to soon be on the audit committee.

The audit committee, she says, "depends on the CFO to provide timely, accurate and complete information and to discuss any issues--whether large or small in their eyes--that the committee needs to be aware of to be certain that we can put everything in a context, that we understand the risk and understand what accounting treatments are being used."

If there are options, she adds, "we need to understand the decisions that have been made along the way, whether there's adequate staffing and how the numbers were put together." Additionally, she says, if the CFO heard anything during a board meeting that was not consistent with his or her understanding of what was occurring at the company, or if a board member had a misunderstanding of what was occurring, "it is certainly our expectation that he or she would speak up."

Prior to Sarbanes-Oxley, notes...