Board Audit Committees II

What role does the audit committee play in ensuring independent judgement of external auditors?

The audit committee assures stakeholders of financial statement integrity by overseeing external auditors, appointed by shareholders. Maintaining auditor independence requires careful balancing as close relationships with management can risk perceived or actual conflicts of interest. Similarly, disproportionate non-audit income can compromise perceived independence. 

Thus, the audit committee's key functions involve monitoring auditor independence, managing non-audit engagements, reviewing auditor work, and advising on their appointment, retention, or removal.

How is the audit committee's role expanding to include ESG oversight?

In recent years, the committee's role has expanded to include oversight of environmental, social, and governance (ESG) issues. 

The committee ensures compliance with reporting standards such as SASB, GRI, and TCFD, overseeing adherence to guidelines, approving ESG disclosures, and working with auditors to assess ESG risks and opportunities.

The committee's responsibilities regarding ESG include reviewing policies and programs, assessing the company's ESG reporting adequacy, and providing input on environmental management systems, social and human rights policies, and governance frameworks. 

Additionally, the committee monitors the company's ESG performance, providing oversight of the controls and processes supporting ESG reporting, and reporting regularly to the board of directors, investors, and other stakeholders on ESG performance. 

Lastly, the committee assesses ESG risks, considering their potential impact on financial performance and reputation, and their alignment with the company's strategic priorities.

What failures at Enron led to its demise?

Enron's demise resulted from fraudulent accounting that inflated profits and hid debt, overlooked by an audit committee that lacked true independence from management. Their failure to address accounting irregularities and employee concerns led to the company's collapse, massive investor losses, and a significant impact on the US economy. This debacle also caused the dissolution of Arthur Andersen, Enron's auditor, underlining the importance of independent corporate governance and accurate financial reporting.