Ten to-do's for the audit committee: it is a breathtaking set of marching orders for audit chairs and members, but it is what your boards, management, and shareholders need from you.

• Author: Whalen, Dennis T.
• Position: AUDIT COMMITTEE

Recognizing the sizeable challenges that audit committees and boards face in 2012, KPMG's Audit Committee Institute (ACI), in its annual briefing, has identified the key issues that should be top of mind as audit committees think through their agendas for the year ahead.

1. Stay focused on the audit committee's top priority: financial reporting and related internal control risk. This No. 1 to-do from last year holds true for 2012. Ensuring that the audit committee's agenda focuses on the issues that require its attention will be a significant undertaking. The challenges of ongoing economic uncertainty and volatility, coupled with the impact of cost reductions, major public policy initiatives, and an uncertain--yet clearly more complex--regulatory environment will require the attention of every audit committee. Meeting this workload challenge will require focused (yet flexible) agendas, with an eye on the company's key financial reporting and related internal control risks. As-needed updates from management between regular audit committee meetings can be invaluable.

2. Continue to monitor accounting judgments and estimates, and prepare for accounting changes. Monitor fair value estimates, impairments, and management's assumptions underlying critical accounting estimates. Recognize that the company's greatest financial reporting risks are often in areas where there is a range of possible outcomes and management is called upon to make difficult judgments and estimates. Understand management's framework for making accounting judgments and estimates. Make sure management has appropriate controls in place, and ask for the external auditor's views. Also, understand how major accounting changes on the horizon may impact the company, including implementation/resources and IT systems requirements. The SEC continues to explore what role IFRS will play in U.S. financial reporting, with a decision expected in 2012; and key FASB/ IASB joint projects on revenue recognition, leases, financial instruments, and insurance are moving forward. Stay close to where these projects are headed and the timeline.

3. Consider whether the financial statements and disclosures tell the company's story. Given the importance of transparency to the investor community, as well as the SEC's ongoing focus on disclosures, consider how disclosures can be improved--perhaps going beyond what's "required"--to better address expectations. Enlist management's disclosure committee in this...