WASHINGTON, DC – The recent coronavirus outbreak is an excellent lesson on the unpredictability of business. Simone Grimes, who is the CFO at Acadia Insurance and serves as an independent board member for corporate and non-profit boards, says that this is why an audit committee financial expert is vital to a board of directors. “The qualified financial expert is expected to be able to perform a deeper dive into the financial statements and look for red flags that may not be apparent to other board members,” she states. “In fact, with so much unpredictability in the market, and the complexity of financial reports, having a financial expert on the board is a key requirement for publicly traded companies.”
An Audit Committee is a required standing committee of the board of directors. It is responsible for oversight of financial reporting, systems of internal control, and the independent audit of the company’s financial statements. The committee is also responsible for appointing and overseeing the independent auditor’s work.
Simone Grimes explains that an audit committee financial expert is a person who has adequate knowledge of financial matters to assist the board of directors in fulfilling its fiduciary duties related to the oversight of the financial reporting process, internal controls, significant accounting issues, and the work of the external auditor. For public companies the financial expert should be independent of management. The Sarbanes-Oxley Act of 2002 (SOX) requires that companies listed on U.S. stock exchanges have a Financial Expert on their Audit Committee. Likewise, the Securities and Exchange Commission (SEC) requires that public companies disclose in their annual reports whether it has at least one financial expert serving on the audit committee, and whether the person is independent of management.
Simone Grimes says that a financial expert on the Audit Committee is important because it helps ensure that the company continues to fulfill the investor’s expectations. “The Audit Committee’s role is to review the prepared financial statements, approve the earning
release, and sign off on the financial statements.” the NYSE requires the audit committee to have no less than three members. Simone goes on to state, “The Audit Committee is also responsible for providing oversight of the financial reporting process, the audi
process, and the company’s system of internal controls.”
Simone Grimes emphasizes that while each board member is required to be financially literate and have a basic understanding of the financial statements and key financial metrics, the financial expert should have: a deep understanding of generally accepted accounting principles (GAAP), the ability to assess the application of GAAP principles, experience with analyzing, auditing or preparing financial statements, proficient knowledge of the internal controls environment, and an appreciation of the role of the audit committee.
The financial expert’s role on the Audit Committee is becoming increasingly important in light of the rapid changes in the economy stemming from the COVID 19 endemic, coupled with an uptick in regulatory oversight and disclosure requirements. Simone Grimes says, “when material accounting irregularities or disclosure emissions occur, companies generally have to restate their earnings. In some instances, regulators found that the board of directors approved financial statements that they did not fully understand. That’s when an independent financial expert is critical.”
Given the serious nature of corporate scandals, Simone Grimes believes that the Audit Committee must have a financial expert who can provide independent oversight and help protect the interests of shareholders. The financial expert can also act as a liaison between the Audit Committee and management and provide guidance on financial matters.
Another key benefit of having a financial expert on the audit committee is that they can help protect the company from financial fraud. Simone Grimes states that financial experts can serve as a watchdog to ensure that all financial transactions are legitimate and that proper procedures are in place to prevent fraud from happening.
Simone Grimes says that an audit committee financial expert is a critical part of any board of directors. They help ensure that the company’s financial statements are accurate and that the company is in compliance with financial regulations.
Simone Grimes is an independent board member, audit committee financial expert, Chief Financial officer (CFO), and entrepreneur who has a BSC in Accounting, MS in Finance, and MBA from Cornell University. She has held financial leadership roles across various industries, including financial services, big-four (PwC) public accounting, tech, and consumer products. Simone Grimes serves on the audit committee of for-profit and non-profit boards.