Over two-thirds of directors across the U.S. think that the areas of risk overseen by audit committees have dramatically expanded in the 20 years since the passage of the Sarbanes-Oxley Act.
More specifically, 35% of audit committee directors believe that this job creep has put them in a position similar to the board as a whole when it comes to job complexity, according to a report from Diligent and Corporate Board Members released Thursday.
The report — which polled 300 directors across market caps and sectors in the U.S. — looks at directors’ focus and how the role of boards has changed over the years. It covered top of mind boardroom issues, including their structures.
“The role of the audit committee has become unwieldy,” said Dottie Schindlinger, executive director of the Diligent Institute. “The audit committee is beginning to look like the full board in terms of what is on their plate.”
Moreover, the job has become significantly less attractive, with the role seeing turnover rates at an alarming level, Schindlinger said.
In fact, almost a third (28%) of respondents in the Audit Committee Practices Report from the Center of Audit Quality in collaboration with Deloitte’s Center for Board Effectiveness said they anticipate replacing the current audit committee chair in the next 12 months, according to the January survey which polled over 100 audit committee members from public U.S. companies.
Meanwhile, almost all (99%) of accountants suffer from burnout according to a recent study by the University of Georgia and FloQast, an accounting software company.
“There are certain areas that have been added to the audit committees plates where, in some cases, probably need a different approach,” said Schindlinger.
Besides higher turnover rates, continually adding responsibilities to audit committees' plates — the kitchen sink approach as they describe it — “can lead to suboptimal oversight due to overworked audit committees and a ‘check the box’ mentality,” said Vanessa Teitelbaum, senior director of professional practice at CAQ.
Audit committees have now been tasked with overseeing climate risk and climate strategy, cyber risk and digital strategy, managing financial fraud abuse and environmental, social and governance factors — “it's just ridiculous,” said Schindlinger.
A different approach
Depending on the type of business, there can be benefits to breaking out some of these responsibilities into committees of their own.
“It would be helpful for CFOs and boards to take a hard look at what they have on the audit committees plates, and begin to think about creating new committee structures or just rethinking how they divide this labor,” said Schindlinger.
What this looks like for different companies will be dependent on the industry. “You might already have a cyber risk and digital transformation committee or a digital strategy and innovation committee,” or, in the case of ESG, “there are parts of it that really belong to other committees,” she said.
Many boards are taking a fresh look at committee structures and practices to determine whether they are keeping pace with shifting responsibilities and priorities, according to the CAQ report.
“It’s not a bad idea to take a look at the committee structure you have, the reporting structure you have, how you're actually working together, and see if it's time to shake some of that up,” said Schindlinger.