The 鈥淕reat Resignation鈥� and the related competition for talent have become a pain point for the audit committee, particularly when it comes to financial reporting risk and controls.
The 鈥淕reat Resignation鈥� and the related competition for听talent have become a pain point for the audit committee.听While ensuring that the finance organization, internal听audit, and the external auditor are appropriately staffed听and trained is always top of mind, turnover and skills听gaps can be particularly concerning when it comes to听financial reporting risk and controls.
Audit committee members we鈥檝e spoken to shared听concerns about potential and realized control deficiencies听due to such turnover, requiring probing conversations听with chief financial officers, chief audit executives,听and chief information security officers to diagnose the听problems and set a path to shore up processes and听controls. These conversations often center on new听employees in control-owner roles or unfilled vacancies听and the challenge of finding temporary staff or thirdparty听solutions to handle such critical functions. The听overarching challenge is to address key talent gaps听before they evolve into a financial reporting deficiency or听material weakness to be disclosed.
In practice, companies tend to be reactive, not proactive,听when it comes to hiring for positions related to internal听control over financial reporting (ICFR). An analysis of听more than 24 million job postings over the seven-year听period 2010 to 2017 by faculty at Indiana University鈥檚听Kelley School of Business found 鈥渢hat a firm鈥檚 response听to an internal control weakness is concentrated in the听period immediately following the disclosure.鈥� Moreover,听they found that 鈥渋nternal control weaknesses change听a firm鈥檚 demand for financial skills outside of corporate听accounting and extend to other employees, possibly听those that interact with the accounting information听system or whose roles interact with a firm鈥檚 controls听over financial reporting.鈥�1
Of course, in this constantly shifting financial reporting听risk environment, companies are always rowing against听the current when it comes to talent. According to Audit听Analytics, 鈥渁ccounting personnel resources鈥� was the top听internal control issue cited in adverse ICFR management听reports in fiscal year 2020, followed by segregation of听duties related to personnel within an organization. This has听been the case for the vast majority of ICFR management听reports over the last five years.2
鈥淭hese organizations have to be creative in filling gaps,鈥澨齭aid one audit committee member, stressing that the new听work environment has required companies to re-establish听a sense of community that inspires, attracts, and retains听leaders and staff.
Both the finance organization and internal audit have been听significantly impacted by the shifting risk environment,听requiring those department leaders to assess whether听their staffing and coverage plans are appropriate for the听future. 鈥淲e need to be looking to the future to assess听whether there will be a change in skill sets relative to the听service we provide,鈥� said one chief audit executive.
While short-term solutions and quick fixes are hard to听come by, talent-related inquiry can help the audit听committee better understand the strategy and the听progress being made. 鈥淚t is not just the turnover of staff听but 鈥榳hich staff?鈥� and how you are ensuring that your听highest financial reporting control and risk oversight areas听have stability and are protected from too much turnover,鈥澨齭aid another audit committee member.
A version of this article originally appeared in the听听blog.
When talent risk poses financial reporting risk
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