Strategy

Disclosure Committees…Necessary Evil or Saving Grace?


by Leena Roselli

The relationship and interaction between audit and disclosure committees can be challenging for many organizations looking to define each committee’s roles and responsibilities clearly and effectively.

The relationship and interaction between audit and disclosure committees can be challenging for many organizations looking to define each committee’s roles and responsibilities clearly and effectively.

During a session at FEI’s Current Financial Reporting Issues (CFRI) conference featuring audit committee chairs and members, panelists offered their views about how to best establish and maintain this important relationship, and whether they viewed their role as providing oversight and/or direct engagement with their disclosure committee counterparts.

Panelists emphasized the important oversight and control role that the disclosure committees serve. They were in agreement that even though audit committee members should not be on the actual disclosure committee - as this is a management function, they should have oversight to understand the rigor of the disclosure committee’s process, the key issues it deliberated, and to probe all “close calls.”

Unlocking Potential of the Disclosure Committee

The same conclusion was also reached in a new report issued in a joint study by FERF and EY today, titled “Unlocking the Potential of Disclosure Committees, Leading Practices and Trends.

This report provides insights into the relationship between  audit committee and disclosure committee from the perspective of numerous stakeholders including, finance executives, as well as audit committee members and external counsel.

In the report, an audit committee member shared her view that the audit committees responsibility is to oversee the disclosure committee and not act as a “rubber stamp.” ““[I] am most interested in things that the disclosure committee chose not to disclose but had a lot of conversation about. I am more interested in items that came close to the line, yet the committee chose not to disclose at this time,” she added.

Although our study identified many leading practices and common themes, it also revealed that many companies chose different paths in positioning and managing their disclosure committees—including how they choose reporting lines and level of interaction with the Audit Committee.

Surprisingly, 43% of our survey respondents indicated that their disclosure committees has no formal interaction with their audit committee. A New York- based external counsel said,  “anything you can do to increase the engagement of the audit committee, and the board of directors, is good.” In his view while more involvement is important in general, at a minimum, the audit committee should hear the potential choices made. In addition to the audit committee’s interaction with the disclosure committee, this report provides other useful findings and insights, including information on:

  • Disclosure committee organization and composition
  • To whom and at what frequency it reports,
  • Areas of accountability and reports the committee oversees,
  • How it supports the key CEO and CFO certifications under SOX Sections 302 and 906,
  • The coordinator or chair’s role and responsibilities,
  • How decisions are made and disputes are resolved, and
  • An eight-step roadmap to success!
To read or download the full report, please use the following link.