Over the past six months on Going Concern, more than two dozen corporate controllers have shared their experiences and provided practical advice to CPAs and other accounting professionals on certain aspects of the controllership, including talent retention, fraud, cybersecurity, leadership, month-end close, continuing education, Sarbanes-Oxley compliance, and initial public offerings.
But one part of their job that aspiring corporate controllers might overlook is meeting with the audit committee. While much has been written about the relationship between the CFO and the audit committee and even the chief audit executive and the audit committee, there really isn’t much said about the relationship between the controller and the audit committee and the role controllers play during audit committee meetings.
Among other things, controllers work with the audit committee chair to set the agenda for each meeting; often lead the management presentation during committee meetings on significant accounting, financial, and internal control issues; review earnings releases; and respond to questions and comments related to forms 10-Q and 10-K prior to filing.
“I enjoy interacting with the audit committee, and the committee is integral to our corporate governance,” said Robert Ott, CPA, senior vice president and corporate controller at TE Connectivity, a Switzerland-based manufacturer of connectivity and sensor products for harsh environments. “The audit committee is a very valuable resource for the management team, and we leverage their diverse experience in financial disclosures, internal control, compliance, and other matters.”
In the spotlight
TE Connectivity’s management team meets quarterly with the audit committee in conjunction with earnings releases, and there are several other scheduled meetings throughout the year, according to Ott. Additional meetings or calls are held as necessary, he added.
As controller, Ott has a significant role during meetings with the audit committee. His responsibilities typically include:
- Assisting in the facilitation of each meeting;
- Reviewing significant financial reporting matters;
- Reviewing and obtaining approval for filing of 10-Qs and Form 10-Ks;
- Reviewing annual SOX scope, plan, and conclusions;
- Reviewing earnings releases and related disclosures; and
- Briefing the audit committee on new or recently issued accounting standards or disclosure requirements.
“It is important to develop a good rapport with the audit committee—seek their input, engage in a meaningful dialogue, and be responsive to their concerns,” he said.
Brian Harding, CPA, vice president, corporate controller, and principal accounting officer at FLIR Systems Inc., a Wilsonville, Ore.-based company that specializes in the design and production of thermal imaging cameras, said preparing for a meeting with the audit committee involves a significant amount of effort and long hours during a very tight window, “from the time we receive preliminary financial information to the time we report to the board.”
“I enjoy the meetings because it’s an opportunity to meet face-to-face with our board members, leveraging their experience in industry and on other boards and gaining insights on their financial and governance perspectives, ultimately driving continuous improvement in my organization,” said Harding, whose primary role during audit committee meetings includes supporting the CFO and providing commentary on technical accounting matters, including answering questions regarding policies, procedures, and internal control considerations.
“It can be stressful to get a question during the meeting that you don’t have an answer for immediately, but once you’ve developed the ability to say ‘I’ll look into it and get back to you,’ it reduces the burden on excessive preparation,” he added.
10 relationship-building tips
According to Timothy Sangiovanni, CPA, vice president/corporate controller at KemPharm Inc., a Coralville, Iowa-based specialty pharmaceutical company, the audit committee/corporate controller relationship is built on the same cornerstones as any successful relationship: trust, communication, and mutual respect.
“While these attributes are not difficult to achieve, very seldom are they recoverable once lost,” he added.
So, if you don’t want to be in the audit committee’s doghouse, consider the following advice from corporate controllers:
1. It’s all about communication. The most important way to build an effective relationship with the audit committee is for there to be open communication—whether about good news or bad. Poor communication can result in the audit committee being caught off-guard when unexpected problems bubble up to the surface.
“Most issues that can arise are easily avoided by open communication. My goal is to never surprise the audit committee,” Sangiovanni said.
In fact, “no surprises” is one of the most common requests audit committees ask of a company’s finance leaders, according to a CFO Insights from Deloitte.
“Establishing a good relationship with audit chairs early on can enhance mutual confidence in tackling difficult issues when they arise,” the report states.
Sangiovanni added that he provided the members of KemPharm’s audit committee with his direct office phone number, cellphone number, and email address, which they can utilize as needed should the committee have a topic for discussion.
“This interaction works both ways, as I have each individual committee member’s contact information and email address as well,” he said.
David Lloyd, CPA, vice president, corporate financial controller, and treasurer of Greif Inc., a Delaware, Ohio-based company that produces and sells industrial packaging products and services, said he finds it extremely helpful to get together with the audit committee chair a week or two in advance of each meeting to set and go through the agenda.
“This ensures that we’re both on the same page about what key issues to cover and the level of detail desired,” he said.
Harding recommended meeting individually with each member of the audit committee, which he said should be done initially when stepping into the controller position or when a new board member joins the committee.
“I like to ask about specific experiences they’ve had in the past that frustrated them or that they found to be challenging in working with other controllers and finance leaders,” he added. “Jot those down for the ‘what not to do’ bucket for future reference.”
2. Understand the preferences of your CFO and CEO first. “In some cases, the CFO or CEO may prefer to be included on all correspondence or meetings with board members,” Harding said. “As a corporate controller, it’s important to be aligned with the certifying officers before proceeding to relationship-building activity with members of the board. In most cases, I would expect the CFO and CEO to be supportive of this initiative, but always consult with them first.”
3. Maximize your face-to-face exposure. “As with any relationship, professional or otherwise, making the most of your one-on-one time is extremely important,” Harding said.
He offered a few ways a controller can build these relationships in person:
- Show up early to meetings, as there often are opportunities for casual conversation in the hall before the meeting or during breaks.
- Seek opportunities to attend dinners with committee members or have lunch with them between meetings.
- Pursue opportunities to have pre-meeting planning sessions or one-on-one introductory meetings in person, rather than on the phone.
4. Educate audit committee members about the business. One of the takeaways from KPMG’s 2017 Global Audit Committee Pulse Survey is that the effectiveness of an audit committee hinges on it understanding the business. Thirty-nine percent of respondents said better understanding of the business and its risks would improve audit committee oversight.
“Education is critical, as most audit committee members want to understand the business at a more granular level. The more information each member has, the better we can all work within our roles to lead the company,” Sangiovanni said. “At the same time, it is critical to ensure any education provided is relevant to their duties and of interest to the members.”
5. Set a regular cadence for meetings throughout the year. “I work with the audit committee chair on this so we’re prepared in advance to cover key topics at certain times of the year—whether that’s the audit plan, pension assumptions, goodwill impairment testing, and cybersecurity and IT updates,” Lloyd said.
6. Get materials to the audit committee as far in advance as possible. “We try to load materials to the board portal at least a week in advance of the meeting, which gives the committee plenty of time to review,” Lloyd said. “That way, we can focus on having a robust discussion on key issues at the meeting itself rather than just doing a page turn of materials.”
7. Get to the point(s). “Time during the audit committee meeting is limited, and there is often a good amount of information to get through. Ensure that you are touching on the three to five key points you want the committee to take away, versus diving into too much detail,” said Donavon Hall, vice president, corporate controller at Apptio Inc., a Bellevue, Wash.-based developer of business management SaaS applications. “Providing a narrative in advance of the meeting will give the audit committee members an opportunity to consider any points they would like additional detail on.”
8. Present a united front. “Being in tune with the needs of the audit committee is crucial to maintaining a good working relationship,” Sangiovanni said. “The audit committee and management should ultimately be on the same page.”
9. Be accountable. “When issues do arise, take ownership of troubleshooting the root cause and developing and communicating a plan to remediate the issue,” Hall said.
10. Dress for success. “This should be obvious, but even if you work in an environment that allows shorts and flip-flops in the office, wear more professional attire to the board meetings,” Harding said. “For me, this means I wear a suit and tie to the audit committee meetings, even though only half of the board members tend to dress business professional. I’d always prefer to be overdressed than to leave the impression that I didn’t take the meeting seriously enough to wear a suit. Treat every board meeting like a job interview—because it technically is.”
In a future article, both corporate controllers and audit committee members weigh in on the expectations audit committees have of controllers.