Corporate, Business, Or Entity Culture – The Board’s Role And Knowledge About – From State Street

The following is a link to a January 2019, letter from State Street emphasizing and focusing on the business’s culture and how it adds value. The letter pertains to corporate culture because of the business in which State Street operates – but what we are really talking about is business or entity culture which includes public companies, private businesses, nonprofits, and governmental organizations and entities.

The letter is short and lacks detailed discussion about culture; however, I found interesting the attachment to the letter with possible questions that might be asked of the board members about the state of the business’s culture and the director’s knowledge thereof. I would assume that the majority of directors could not answer those questions with detail.

I also found interesting that the letter differentiates culture from values, and instead focus’ on culture’s impact on value. However, I would say that the business’s values drive and impact the business’s culture.

As culture has become a board topic (and apparently it might be here to stay), I would like to see additional, more specific discussions about how to evaluate and grade, and improve upon the organization or entity’s culture.

This definitely is a topic for the full board, but as it also falls into the category of risk management or ERM, this might also be on the plate of the risk management committee, if there is one, or on the plate of the audit committee to which risk management is often delegated (but let me also add, in my view, risk management is a topic for the entire board – if risk management is delegated to a committee, that committee should, nevertheless, report on risk management to the full board, for the full board’s consideration).

Here is the link to the State Street letter – be sure to read the attachment https://www.ssga.com/investment-topics/environmental-social-governance/2019/01/2019%20Proxy%20Letter-Aligning%20Corporate%20Culture%20with%20Long-Term%20Strategy.pdf

Best to you, David Tate, Esq. (and inactive California CPA)

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance and risk management http://auditcommitteeupdate.com

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The following are a few additional materials for your consideration.

Auditor Inclusion of Critical Audit Matters in Audit Opinion – Center for Audit Quality Release to Help Understanding

You might be aware that external auditors are required to include a discussion of critical audit matters in their audit opinion reports for large accelerated filers for audits of fiscal years ending on or after June 30, 2019, and for other public companies for audits of fiscal years ending on or after December 31, 2020. I believe that these discussions will in some instances present or cause contentions between the external auditor on the one hand, and the audit committee, board, and chief executive officers on the other hand.

A Critical Audit Matter or CAM is defined as:

Any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee: and that:

  1. Relates to accounts or disclosures that are material to the financial statements; and
  2. Involved especially challenging, subjective, or complex auditor judgment.

Thus, based on the above definition, simply determining whether a matter is a CAM could be a challenging issue.

For example, in any given audit situation consider:

-What matters were communicated, or were required to be communicated to the audit committee;

-Relating to accounts or disclosures that are material to the financial statements; and

-Involved especially challenging, subjective, or complex auditor judgment?

I will be discussing the good, the bad, the ugly, and the confusing as this upcoming new area of audit opinion report continues to develop. Auditors and audit committees will need to carefully evaluate what to communicate and what is required to be communicated, materiality (qualitative and quantitative), and whether a matter involves especially challenging, subjective, or complex audit judgment.

For additional help with these issues, the following is a link to a June 24, 2018, release by the Center for Audit Quality entitled Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and other Users of Financial Statements – click on the following link https://www.thecaq.org/critical-audit-matters-key-concepts-and-faqs-audit-committees-investors-and-other-users-financial

Best to you, David Tate, Esq. (and California inactive CPA)

 

 

 

 

Tate’s Excellent Audit Committee Guide (02172017) – posted here, and being update

Below I have provided a link to Tate’s Excellent Audit Committee Guide, which I last fully updated February 17, 2017. Since that time developments relating to various of the discussion topics have been posted to this blog. I am starting the process of fully updating the Guide. To be sure there have been changes and developments since February 17, 2017; however, I believe that you will still find the Guide useful.

Click on the following link to the February 17, 2017, Guide Tate’s Excellent Audit Committee Guide 02172017 with Appendix A-2

The following is a screenshot of the Guide’s cover:

 

 

 

Director (Prudent) Note Taking, Discouraged or Not – Forward From Woodruff-Sawyer and Priya Cherian Huskins With Comments

Here is a link to a good discussion by Priya Cherian Huskins, Esq. at Woodruff-Sawyer about director note taking (not minute taking, but note taking), which can also apply to note taking in general in many situations, CLICK HERE. I agree with Ms. Huskins.

There should be policies and procedures or guidelines to be followed, but a director should be allowed to take notes, and should not be told that he or she cannot take notes. It is a matter of the director performing his or her oversight function in the manner that he or she believes is prudent and necessary. If I was told that as a director or audit committee member that I could not take notes that I thought were necessary and helpful to me and my oversight, I would question that instruction or request, and consider declining the position if it was forced.

Best, Dave Tate, Esq. (San Francisco/California)

‘Internal audit is crucial to assessing impact of corporate culture’

Internal audit’s mandate is much broader than external audit’s, says Richard Chambers of Institute of Internal Auditors

Click on the following link for the article: www.thehindubusinessline.com

Dave Tate, Esq. comment.

 

I’m going to disagree with Mr. Chambers on this one. I believe it is better for external audit to be auditing this issue – which is an issue that external audit already should be taking into consideration when designing the audit and the extent to which management and the accounting and internal control functions can be relied upon.

 

Although internal audit could be assigned a task or project relating to culture, on this topic I would keep the task or project very specific. Internal audit does also work and interact with management and executive management – assessing culture might detrimentally impact those relationships. I would however recommend that internal audit be more involved in risk management, which could involve culture but in a different context.

 

Audit committee, D&O, risk management, etc. blog: http://auditcommitteeupdate.com

Website: http://tateattorney.com

Trust, estate, conservatorship and elder abuse litigation blog: http://californiaestatetrust.com

 

 

How Can Internal Audit Support the Growing Responsibilities of the Audit Committee?

Recent 2015 audit surveys report some interesting findings about the current role of audit committees. They highlight not only how complex the world of risk management and oversight has become in the corporate world, but also the enormous breadth of responsibilities that the audit committee is expected to bear.

Click on the following link for the article: corporatecomplianceinsights.com

Dave Tate, Esq. comments: although this is a very brief article, the topics and issues listed are large and complex. The article also offers no help at resolution. But, these issues are here to stay for boards and audit committees. Every internal audit function is different – some are qualified or partially qualified to help with these issues, whereas some are not. For some additional information, see Tate’s Excellent Audit Committee Guide (January 3, 2016, version, 183 pages) at http://wp.me/p75iWX-q.

 

Best. Dave Tate, Esq. (San Francisco and California. See also my other blog re trust, estate, conservatorship, power of attorney and elder abuse litigation and contentious administrations at http://californiaestatetrust.com, and my website at http://tateattorney.com.

Do You Have a Contrarian on Your Team?

A divergent opinion can lead to more creative and better decisions.

Click on the following for the article: www.gsb.stanford.edu

Dave Tate, Esq. comments – good for thought – every board and management situation is different anyway – but also, did anyone say that there shouldn’t be or can’t be contrarian views on a board or committee? Look at the business judgment rule – there’s nothing there about all having to agree. One vote per person. My website: http://tateattorney.com.