Before we get into the “WHOs” of the Audit Committee in particular, it is important to ensure that your organization recognizes the key participants within the marketplace, as they all bring unique experiences and perspectives to the governance of financial reporting.
Let’s begin with the stakeholders within the organizations themselves, which include the oversight boards and directors; financial and operational management; and internal auditors. Independent external auditors play a pivotal role in providing assurance as to the reliability of the financial statements prepared by management. Consultants and third party advisors, such as legal counsel, also play key roles in assisting organizations to navigate the rules and regulations of the marketplace, which include key operational and financial reporting aspects.
External to the organization are the regulatory agencies (the IRS, Government Accountability Office (GAO), Office of Management and Budget (OMB), federal agencies for those organizations with federal funding and state regulatory bodies); standard-setters (FASB, AICPA, IASB, etc.); and other stakeholders including the general public, members of organizations and potential donors, all of whom are actively concerned with the structuring and protection of fair and consistent reporting.
Members, donors and the general public, along with the media, are also viewed as key stakeholders as they continue to gain more and more power in shaping how business is transacted and communicating how organizations should be governed.
The interaction of all of these stakeholders is what makes business so intriguing and, as of late, decidedly more challenging. The ever-changing conduct and governance of business demands that these various stakeholders work together to promote the reliability of the financial reporting process.
At the center is the audit committee, in its oversight role, which is charged with fostering the appropriate tone at the top and establishing and maintaining strong relationships with the other key stakeholders.
Let’s now explore this responsibility more closely.