POWER TO THE AUDIT COMMITTEE PEOPLE.

• Author: Berardino, Joseph F.

High-quality audits are vital to the work of the CFO. Thus, audit committee integrity, relevance and effectiveness are critical concerns.

As the assets and value drivers of our economy shift from the physical and financial to the intellectual and intangible, the risks of error and surprise are multiplying faster than business leaders can run. The price of failure, always high, has gotten higher. Lofty market values and unforgiving stock market expectations are magnifying the impact of earnings disappointments, ethical lapses and financial errors - even as pressure to meet expectations grows.

Therefore, it's not surprising that 90 percent of the executives at a recent FEI/Arthur Andersen symposium on the changing roles of audit committees said the inherent risks of doing business are rapidly increasing. And more than half think management's ability to identify and manage inherent business risks isn't keeping pace with accelerating change. Business leaders need - and want - help.

At the same time, our arrival in the Knowledge Age means we can no longer rely on financial reporting systems designed for the Industrial Age. Book values of companies now bear little relationship to market values. That's because drivers of wealth in the new economy include such hard-to-quantify assets as customer and vendor relationships, business processes and human capital. Investors line up to pay billions for companies that control "eyeballs" and IQs and discount owners of plants and equipment.

Financial reporting and oversight must evolve to reflect the realities of this new age. We need a system that offers investors a high level of confidence in the ability of companies to manage change, complexity, the tangible and the intangible - one that assures the reliability of financial reporting and a company's continued ability to generate cash, sustain earnings and be viable in a very dynamic and often unpredictable global marketplace.

Many have key roles to play in the evolution of this system and in assuring its integrity, relevance and effectiveness. They include the CEOs, CFOs and managers who operate businesses and prepare financial reports; internal and external auditors; corporate boards; regulators and standard-setters; the exchanges and underwriters who make and manage our markets; financial analysts and port-folio managers; the media; and the investors and their advisors who ultimately depend on them.

Power Points

But across this chain of responsibility, one group stands out for its potential: audit committees. And it stands out because audit committees are a powerful, often under-utilized agent for change and improvement in corporate governance and the quality of financial reporting...