Audit committee: The toughest job you’ll ever love
I’m preparing for an upcoming board audit committee meeting, and I am conscious that I am reading the briefing papers more carefully, slowly and deliberately than usual. I am always thorough, but recent events have given me pause. I am sure I am not the only member of an audit committee who, seeing the headlines about accounting that touch the boardroom, is taking extra care of late.
In April, Groupon’s audit committee made headlines because the company found some accounting discrepancies that should have been caught earlier. This followed concerns about the company’s accounting before it went public in November of 2011. The spotlight was on Groupon’s board and its audit committee, with questions about whether it had enough expertise in the room and whether all had been asking the hard questions. The committee had strong business experience ‑ among its members was Starbucks Chief Executive Officer Howard Schultz ‑ but the bigger question was whether the board had enough financial experience. Some mea culpas and a couple of new board members with weighty accounting credentials later, Groupon presses on.
This past month, Starbucks, Amazon and Google were hauled before a committee of MPs in the U.K. for accounting practices that seem to be legal, but have struck people as unsavory. Clever accounting designed to save every penny has given boards pause for thought. The practice fulfills the brief of saving money and squeezing out every ounce of profit for a company, but just because we can do it, does it mean we should?
When we sit in audit committee meetings, or when we are discussing financial health and strategy for companies, we can’t be siloed in our thinking. We can’t have our finance hat on for part of the discussion, then swap it for another hat when we talk about marketing or corporate reputation or corporate social responsibility. Investors care about the health of the business, but the public also cares about how business is conducted. We don’t operate in a world where we can tell people not to look behind the curtain to see how the magic happens. As the old advice goes, don’t do anything you wouldn’t want reported on the front page of the New York Times, or in this case, reported by Tom Bergin of Reuters.
Last week, Hewlett-Packard accused Autonomy of poor accounting and of hiding the real figures during the due diligence of the latter company’s acquisition. This is a story still in motion, but there are a number of people and organizations that will be getting extra scrutiny in the coming weeks. Some of the questions being asked: Were Autonomy’s accounts shady? If they were, was the board aware, and more specifically, was the board’s audit committee aware? If they weren’t, why not? If they were, did they collude in some sort of a cover-up?
In the meantime, questions are being asked about the audit and accounting firms for HP as well as for Autonomy‑ for one, why didn’t the 15 different financial, accounting, and legal firms involved in HP’s acquisition of Autonomy flag any of the wrongdoing that Autonomy is accused of? As the story unravels, we’ll see who was wilfully blind or purposely misleading. It’s likely there will be months of investigations ahead.
So, back to my audit committee papers and my upcoming meeting. I just reread the line in my briefing papers from the auditors that notes: “… primary responsibility for the prevention and detection of fraud rests with management and those charged with governance …” As audit committee members, our jobs are to read the story that the numbers tell, ask tough questions and communicate with the auditors about any concerns that we or they have. I am reading my papers with care, looking out for discrepancies or things that should be there but aren’t, making notes of questions to ask. Like many of my audit committee colleagues, I will be entering the room ready to be engaged ‑ perhaps sitting a bit straighter with the echoes of audit and accounting headlines in the back of my mind.