Why and When I'd Serve on Another Audit Committee
from May/June 2002
No doubt lots of directors would never join an audit committee—or if they’re already on one, can’t wait to get off. But not Betsy S. Atkins, 46, one of three audit committee members at Lucent Technologies. An outside director since 2000—the year Lucent paid $23 billion for Ascend Communications, a telecom-equipment manufacturer that she co-founded—Atkins is open to invitations to do similar work at other companies. But the job does have its worries, as she told Corporate Board Member in an interview. Excerpts:On what keeps her up at night: I worry there’s a question that wasn’t asked with enough probing, so that the topic may not have been fully discussed and disclosed. If the external auditors tell you everything is fine, then you must follow up and ask them, “Where do we need strengthening? Where might we have exposure?”
Revenue recognition is one of the big things you worry about, plus you want to be sure that the internal controls are vigorous enough to identify potential weaknesses. You have three swings at bat to do the fiduciary investigation to reassure yourself that all is in accordance with FASB and SEC guidelines. There is the private meeting with the outside auditors, the private meeting with the internal auditor, and the private meeting with the CFO. These three meetings should be conducted separately.
On what else audit committees can do to keep the books accurate: I believe we will see more rigorous audit committee meetings to review the quarterly results. The audit committee should also review the 10-K filings. That means holding an extra meeting so the CFO and the audit committee can go over them together.
On other changes she’d like to see: A strong internal audit, to ensure that there are multiple analyses of the financial controls and revenue-recognition practices. If a company outsources some of the internal audit, it should use a different firm from the one that does the [independent] audit. A third firm should provide the company’s financial-systems design and consulting.
On audit committee service: People are reluctant to serve because there is greater liability and the work is very time-consuming, an extra six or seven days’ work a year, perhaps. But you join a board to become part of their team and to serve where they need strengthening. That’s what I get out of it.
On whether she would accept an invitation to join another audit committee: Yes, I would. But I’d be careful, just as I am when I’m asked to join a board. I’m putting my reputation out there, and I’m making a commitment to a long-term relationship that is going to require a lot of work. So I want to be sure the company is financially strong and has a management with high standards and a good strategy.
On what directors should do before joining an audit committee: I’d suggest getting together with the committee chairman, the outside auditors, and the CFO. The complexity and workload of the committee can be greatly influenced by how aggressive a company’s accounting practices are. It’s probably not a good thing to be on the audit committee of every company where one is a director.
On what directors can do about cooked books: A committee member is expected to exert good business judgment and wisdom, which sometimes comes with scar tissue, to sniff out or recognize potential problems. But fraud, by its nature, is something somebody makes an effort to hide. Unless you are a CPA and past auditor, you will likely be snookered.
