At most financial institutions, the audit committee is the most important board committee. Indeed, just about everything of significance that happens within an institution ends up passing through the audit committee in some form or fashion. To build off of yesterday’s post (Building a Higher Performance Bank Board), let me take a quick look at this essential committee.
While a typical audit committee meeting involves matters like a summary of internal audits, regulatory reports and economy/operational/product/market/personnel changes, I thought to share four characteristics of “high performing audit committees” based on numerous conversations with audit committee chairs, members and executives with accounting firms:
- Independence from management is critical;
- Financial expertise is key;
- Access to external experts (e.g. authorized to engage counsel independently) is essential; and
- Industry knowledge separates the good from the great.
As my friend and colleague Jack Milligan likes to say, members of a bank’s audit committee are typically the smartest people on the board. When you look at some of the technical accounting and financial reporting issues they have to deal with, you would at least have to agree that they carry a pretty heavy load — particularly when the audit committee is also responsible for risk governance, which is still the case on most community bank boards.
If you’re interested…
Here are three resources that can help you go deeper into this topic today:
- Naomi Snyder shares a “10 Best Practices for Audit Committee Members.”
- The Center for Audit Quality (CAQ) offers a variety of resources including alerts, comment letters, and information regarding audit committees issues.
- June’s Bank Audit & Risk Committees Conference focuses on important accounting, risk and regulatory issues facing bank boards today.
Tomorrow’s focus: joining a bank’s Risk Committee.
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