Emerging issues for boards and audit committees · Audit committee reporting – Focuses on trends...

Emerging issues for audit committees

American Gas Association

August 17, 2016

With you today

Darin W Kempke

Partner

KPMG National Audit Sector Leader: Energy

3© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG global survey: “Calibrating strategy and risk”

If you aren’t constantly assessing strategy

and risk, and adjusting as you go, there’s

no way you’re keeping pace as a business

or a board.



KPMG global pulse survey: Five takeawaysBoards continue to deepen their involvement in

strategy – including execution.

Effectively linking strategy and risk continues to elude

many boards.

Better risk information and access to expertise are

(still) top of mind.

Cyber security may require deeper expertise, more

attention from the full board, and potentially a

new committee.

Oversight of key strategic and operational risks could

be more-effectively communicated and coordinated

among the board and its committees.



Q: In what areas (if any) has the board’s involvement in strategy increased over the past 2 – 3 years?

Monitoring execution

Recalibrating strategy

33% Devoting more time to technology issues, including cyber risk

24% Testing the ongoing validity of assumptions

53%

47%

35%

11% No significant increase – board has been deeply engaged

for years

11% No significant increase – but deeper engagement is needed

5% Unclear

Formulation of strategy alternatives/ consideration of

strategic alternatives



Q: How satisfied are you that risk and strategy are effectively linked in boardroom discussions?

Somewhat satisfied

Not satisfied

10% More than satisfied

2% Unclear

44%

31%

14%

Satisfied



Q: What would most improve the company’s risk-related decision making?

A more clearly-defined risk appetite

More effective promotion and assessment of company’s

risk culture

33%Greater consideration of the “upside” of risk-taking (versus

risk-avoidance)

20% A more prominent role for chief risk officer (or equivalent)

53%

41%

35%

3% Other

5% None of the above

Closer linkage of strategy and risk



Q: What would most improve the board’s oversight of cyber security?

Deeper technology expertise on the board

Full board devoting more agenda time to cyber risk

23%Formation of a new committee (to address cyber and

technology risks)

11% Narrower role for the audit committee

51%

40%

30%

7% None of the above

4% Other

Greater use of third-party expertise



Q: How satisfied are you with the communication and coordination between the board and its standing committees regarding oversight activities around the company’s key strategic and operational risks?

Somewhat satisfied

More than satisfied

11% Not satisfied

3% Unclear

44%

31%

11%

Satisfied



Q: What steps has the board discussed or undertaken recently in light of the increasing complexity of the business and risk environment?

Better coordination of risk oversight activities among the

board and its committees

Hearing more third-party/independent views on the

company’s risks

20%Refreshing the board / recruiting directors with

specific expertise

19% Changes to the board’s committee structure/creating

new committee(s)

61%

35%

25%

18%Reallocation of risk oversight responsibilities (to better

balance committee workloads)

6% Other

Improving risk-related information flowing to the board



In-depth interviews: recurring themes— Good risk management is an

ongoing business discussion –

dynamic and enterprise-wide

— Risk and strategy go hand

in hand

— Getting the risk culture right starts

at the top, but succeeds (or fails)

in the middle

— Recognize that cyber security is

a critical business risk, requiring

the full board’s attention

— Step back and assess whether

risk oversight roles and

responsibilities are clear and still

make sense

On the 2016audit committee agendas

On the 2016 board agenda

Deepen the board’s

engagement in

strategy

Make talent

development a

strategic priority

Reassess the

company’s

vulnerability

Refine and

broaden

boardroom

discussions about

cyber risk and

security

Promote effective

engagement with

shareholders,

including

the activists

Keep board

composition front

and center

On the 2016 audit committee agenda

Maintain

control

of the committee’s

agenda

Quality financial

reporting starts

with the CFO

Monitor fair value

estimates,

impairments,

& judgments

Assess the

company’s

readiness for the

FASB’s new

revenue

recognition

Reinforce audit

quality

Tell the company’s

story—and the

audit committee’s



Audit committee reporting

– Focuses on trends and emerging issues

– Reports root causes and consequences of issues with

clarity and impact

– Includes significant risk exposures and control issues as

requested by the audit committee

Enhanced reporting by internal audit

– Documenting arrangements concerning report content

expectations

– Committee member backgrounds and preferences

– Board and audit committee communication style

– Focus on any changes since last meeting

– Knowledge of upcoming organizational changes (M&A,

regulatory, etc.)

Understanding audit committee expectations



Key information provided to the audit committee by internal auditCommon Practices

— Key changes to audit plan from what

was originally approved

— Significant issues/findings from the

previous quarter’s work

— Dashboard reporting on “audit

activities” and “audit operations”

— Status of any internal transformational

initiatives IA is undergoing

— Special reporting, e.g., whistleblower

hotline, and other relevant reporting

— Status of how previously identified

issues/problems

are being addressed by the business

(i.e., timeliness, completeness, etc.)

Enhanced Communications

— Assessment of the control

environment by business segment

and in the aggregate (point in time

and directional opinion)

— Adequacy of risk management

processes and controls around

key risks, and how compensation

plans impact risks

— Internal Audit’s opinion as to how well

significant business initiatives are

being managed (e.g., large IT

transformations, key

regulatory changes)



Audit committee’s increasing reliance on internal audit and the CAE— “The eyes and ears of the audit committee”

— Importance of CAE / Audit Committee chair relationship

CAE assisting audit committee chair in

— Preparation of Audit Committee agenda and organization of

committee meetings

— Helping to coordinate risk oversight processes of board and its

standing committees

— Helping to define board / committee information requirements

— Suggesting possible leading practices in key areas of audit

committee oversight

18network of independent member firms

affiliated with KPMG International

Cooperative (“KPMG International”),

a Swiss entity. All rights reserved.

The KPMG name and logo are

registered trademarks or trademarks of

KPMG International.

© 2016 KPMG LLP, a Delaware limited

liability partnership and the U.S.

member firm of the KPMG

• Dashboard report on current activities

• Changes to annual plan

• Status of the annual audit plan

• Critical findings or emerging trends

• Internal Audit staffing, impact of resource

limitations, and costs vs. budget year to date

• Results of special investigations

• Department performance metrics /scorecard

Quarterly Typical Content

Summarize what the committee needs to know

about routine findings, and report separately on

more important matters such as:

• Matters that might affect the fairness of financial

reporting

• Breaches of the company’s ethics policies

• Details of any frauds discovered

• Significant delays in management responding to

or acting on findings and recommendations

Enhanced Content

• Report on the year in review to include themes

or trends identified

• Update of the risk assessment and audit plan

• Report on the results of the internal quality

assurance and improvement program

• Discuss the results of the external quality

assurance review, timing / frequency of the

external assessment and reviewer’s

background

• Review and approve updates to the IA

department charter

Annual Typical Content

The annual report is typically a summary of the

four quarterly reports. Additional items to cover

may include:

• Analysis and summary of the control

environment and identification of emerging risks

or trends

• Statement that all work continues to be

performed in accordance with IIA standards

• Details of changes in personnel and

professional development courses attended

Enhanced Content

Quarterly and annual reporting

Appendix

Survey demographics



56%

11%

18%

15%

Audit Committee Member

Director (not on audit committee)

C-level Executive

Other

Survey respondents by title/role



Survey respondents (continued)

= 20 or more responses

Argentina

Australia

Bahrain

Belgium

Bermuda

Canada

Chile

France

Germany

India

Indonesia

Ireland

Israel

Japan

Korea

Malaysia

Malta

Mexico

Philippines

Poland

Portugal

Qatar

Singapore

Slovenia

Switzerland

Taiwan

United Kingdom

United States



About the Board Leadership CenterThe KPMG Board Leadership Center champions outstanding governance to help

drive long-term corporate value and enhance investor confidence. Through an array

of programs and perspectives—including KPMG’s Audit Committee Institute and

Private Markets Group, the WomenCorporateDirectors Foundation, and more—the

Center engages with directors and business leaders to help articulate their

challenges and promote continuous improvement. Drawing on insights from KPMG

professionals and governance experts worldwide, the Center delivers actionable

thought leadership—on risk and strategy, talent and technology, globalization and

compliance, financial reporting and audit quality, and more—all through a board lens.

Learn more at KPMG.com/BLC.

Thank you

Contact: Darin W Kempke

[email protected]

267 256 3344

mailto:[email protected]

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such

information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on

such information without appropriate professional advice after a thorough examination of the particular situation.

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Emerging issues for boards and audit committees · Audit committee reporting – Focuses on trends...

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