Are There Governance Implications for the Board and/or Audit Committee?
Corporate directors – and in particular, audit committee members – need to be mindful in the selection and application of financial reporting standards. Specifically, the risks of “opportunistic behavior” by management, or “accounting principles shopping” in choosing between U.S. GAAP or IFRS adoption, in order to affect key financial ratios and other performance measures, potentially affecting bonus awards and option grants, may demand greater board scrutiny. Directors, together with any legal or accounting counsel, must gain comfort with management’s choices, both as to the propriety and appropriateness of the actual accounting standards selected, and also as to the internal control implications of making those choices. Furthermore, they should anticipate, and in fact insist upon, greater scrutiny of these management decisions by the reporting entity’s outside auditors. This is another area where audit committee consultation with special counsel or independent accountants – the engag
