Q2 2025 Audit Committee Agenda

Current Business Issues and Risk Considerations

Reminders About Macroeconomic Conditions

• Recession risk
• Rising interest rates
• Continuing inflation
• Tightened labor market
• Credit contraction 
• Climate risk
• Uncertainty in the real estate sector (residential and commercial)
• Fluctuations in foreign currency exposure (geopolitical environment and supply chain challenges)
• Cybersecurity
• Pace of technological innovation
• Uncertain regulatory environment in the U.S and globally

Accounting & Reporting Considerations During Economic Uncertainty

Accounting Considerations - Evolving situations that require continual assessment and analysis, particularly whether a downward measurement adjustment is required for assets or whether new liabilities may need to be recognized. 

Importance of Disclosures - Transparency for investors through evaluation of the completeness and transparency of accounting, judgments, and as well subsequent events, risks and uncertainties, and going concern assessments. 

SEC Reporting Requirements – Changing economic environment often creates new and evolving risks, uncertainties, impacts, and challenges that can affect SEC registrants’ disclosures.

Internal Controls Over Financial Reporting – Whether there may be a need to design and implement new or modify existing controls to address complexities and risks associated with events that cause economic uncertainty.

Auditing Considerations – Whether there may be heightened and new risks of material misstatement or more difficulty in an auditor’s ability to obtain sufficient appropriate audit evidence for both the audit committee and management to factor into their oversight and execution of financial reporting. 

Corporate Governance - Highlights the importance of boards and audit committees working closely with management, auditors, and advisors to evaluate risks and form meaningful responses to and communications about those risks. This includes the effects on employees, customers, and supply chains, including how executives are planning for contingencies. 

CAQ: Audit Partner Pulse Survey

The Center for Audit Quality’s 4th annual Audit Partner Pulse Survey gathers insights from top public company audit partners on the U.S. business environment, including economic health, business risks, strategy adjustments, talent shortages, fraud prevention, and emerging technologies like AI and crypto assets.

What do you believe are the largest economic risks facing companies in your primary industry sector over the next 12 months?

Internal Audit: Essential Questions for Board Directors in their Oversight Role

Effective board oversight is essential for IA’s success, guided by listing standards and the updated Global Internal Audit Standards™ from The Institute of Internal Auditors (IIA).

Below are some essential questions that boards of directors should consider in their oversight of the IA function:

• Alignment and Mandate: Are the board and internal audit aligned on purpose, mandate, expectations, roles, and responsibilities? 
• Strategy and Risk: Are the board, internal audit, and management aligned on strategy and risk priorities?
• Quality Assurance and Performance: How is quality assurance and performance being monitored and evaluated?
• Resources and Performance: Does the IA team have the necessary resources and expertise to fulfill its current responsibilities and evolving needs?
• Board and Management Support: What is being done to ensure the board and senior management support and collaborate with IA?

Data Protection: Essential Questions for Board Directors

Data is a vital company asset and protecting it amid increasing cyber threats is a key challenge for boards and directors. Ensuring long-term success requires compliance with regulations, promoting innovation, and building trust in data protection. 

Check out BDO’s recent insight which details questions that every board should consider regarding their company's privacy and data protection policies, procedures, and strategies.

Building a Transparent Shareholder Communications Strategy: 10 Questions Boards Should Ask

Here are several questions that boards should consider asking to ensure that they have a productive shareholder communication strategy in place: 

1. Do we regularly review and update our publicly facing governance documents to align with our board agendas, governance activities, meeting minutes and other publicly issued documents?
2. Do we have a policy and process for shareholder outreach, and do we review our communications to shareholders and others to ensure transparency? 
3. What are the key concerns of our shareholders and are we adequately addressing them and communicating our response?
4. How can we proactively engage and communicate further with our shareholders?
5. Do our board composition and corporate governance policies align with our mission and values that provide credibility to our positions? 
6. Are there weaknesses in our business operations and strategy that would attract activist attention? How are we actively addressing these?
7. Do we have a communication strategy in place for responding to activist demands?
8. Do we have advisors identified to help us navigate an activist campaign?
9. Do we have a strategy to balance prioritizing long-term value creation with addressing immediate concerns raised by activists?
10. Can we withstand the financial costs of dealing with activist campaigns and what are the impacts that a proxy battle may have on our business operations?

BEPS 2.0: Addressing Organizational Impact of Global Tax Reform

• Key questions for boards and management teams to consider when developing risk mitigation and operational strategies to address the organizational impacts of global tax reform, specifically under the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two global minimum tax rules.
  • Do we understand our reporting requirements?
  • Have we created and collaborated as a cross-functional team?
  • How are we monitoring and evaluating the evolving business and legislative landscape?
  • Are we considering the impacts to overall business strategy and enterprise risk management?
• To dive deeper into these questions, read BDO’s insight here. 
• For more insights and information on BEPS 2.0, refer to BDO’s Global Tax Reform hub and International Tax Services.

Corporate Governance Framework (CGF)

• The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has released an exposure draft of a new Corporate Governance Framework (CGF).
• Designed to help entities assess and enhance their corporate governance practices in alignment with their unique organizational needs, the CGF is organized around: 
  • Six core and interconnected components. 
  • Each component is comprised of principles (24 in total) that represent key objectives. 
  • Each principle is further supported by points of focus that expand on how entities choose to work toward achieving the principles. 
• The CGF further contains insights as to leading practices and advanced governance considerations.  
• The framework structure and design is consistent with other major COSO frameworks on internal controls and enterprise risk management
• Public comments may be submitted via a survey link and are requested by September 12, 2025. 

View the CGF exposure draft here.

PCAOB Activities Update

PCAOB Releases 2024 Annual Report

The PCAOB published its 2024 Annual Report, emphasizing its commitment to investor protection. The report outlines how this mission was carried out:

• Enhancing Inspections
• Improved firm deficiency finding rates.
• Faster release of inspection results.
• Increased focus on audit firm culture.
• New website features with inspection data.
• Resources and support for smaller audit firms.
• Timely updates on inspection trends and audit quality.
• Insights on best practices and emerging risks.

Modernizing Standards and Rules

• Adoption of new/revised standards for:
  • Audit firm quality control
  • Auditor responsibilities
  • Accountability for violation.
  • Use of technology in audits
  • Withdrawal from registration
• Proposal on substantive analytical procedures

Safeguarding Investors Through Enforcement

• Targeted enforcement against serious investor risks.
• Penalties for severe violations (e.g., altering workpapers, misleading investigators).
• Sanctions for quality control failures at audit firms.
• Continued accountability for individual misconduct.

Prioritizing Organizational Effectiveness & Stakeholder Engagement

• Resources and forums for small audit firms, hosted by PCAOB Board Members.
• Stakeholder events on capital markets and global audit regulation.
• New educational materials for investors.
• Engagement with over 250 audit committee chairs.
• Record number of PCAOB scholarships, with mentoring for recipients.

2024 Conversations With Audit Committee Chairs

• Each year, the PCAOB staff interviews audit committee chairs from U.S. public companies and broker-dealers whose audits are inspected. These conversations offer valuable insights that help shape the PCAOB’s inspection planning.
• This year’s Spotlight summarizes key findings from 272 interviews conducted in 2024. 
• Discussion topics included relationships with audit firms, the impact of the economic environment on audits, and the use of new technologies in the audit process.
• The Spotlight also addresses common questions from audit committee chairs, such as:
  • How audits are chosen for review
  • What the inspection process involves
  • Whether the PCAOB offers educational resources or events for audit committee members

View the Spotlight

Auditing Accounting Estimate: PCAOB Audit Focus

Common Deficiencies Noted

• Did not evaluate the reasonableness of significant assumptions beyond vouching

• Did not identify the significant assumptions 
• Did not perform procedures other than inquiry and/ or reperforming the mathematical calculations
• Did not evaluate whether the company’s methods are in conformity with the applicable financial reporting framework
• Did not understand how management analyzed the sensitivity of critical accounting estimates

Good Practices that Firms have Implemented

• Updated guidance to ensure an appropriate scoping exercise
• Updated policies and procedures to require engagement teams to use their external audit methodology provider’s audit program for testing accounting estimates
• Updated partner and EQR partner review policies
• Development of risk assessment procedures

View the article

PCAOB Updates Standard Setting Projects

Recently Completed or Effective Standard Setting Projects

Short-term Standard-setting Projects

Mid-term Standard-setting Projects

Research Projects

Rulemaking Projects

Resources

View prior quarter Audit Committee Agendas: Q1 2025

BDO Center for Corporate Governance

BDO ESG Center of Excellence

BDO’s Accounting, Reporting, and Compliance Hub (ARCH)

BDO in the Boardroom podcast series

Quarterly Technical Update webcast series

Internal Audit webcast series

Quarterly IFRS Accounting Standards webcast series

BDO Corporate Governance Matters webcast series