The “Great Resignation� 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 “Great Resignation� and the related competition fortalent have become a pain point for the audit committee.While ensuring that the finance organization, internalaudit, and the external auditor are appropriately staffedand trained is always top of mind, turnover and skillsgaps can be particularly concerning when it comes tofinancial reporting risk and controls.
Audit committee members we’ve spoken to sharedconcerns about potential and realized control deficienciesdue to such turnover, requiring probing conversationswith chief financial officers, chief audit executives,and chief information security officers to diagnose theproblems and set a path to shore up processes andcontrols. These conversations often center on newemployees in control-owner roles or unfilled vacanciesand the challenge of finding temporary staff or thirdpartysolutions to handle such critical functions. Theoverarching challenge is to address key talent gapsbefore they evolve into a financial reporting deficiency ormaterial weakness to be disclosed.
In practice, companies tend to be reactive, not proactive,when it comes to hiring for positions related to internalcontrol over financial reporting (ICFR). An analysis ofmore than 24 million job postings over the seven-yearperiod 2010 to 2017 by faculty at Indiana University’sKelley School of Business found “that a firm’s responseto an internal control weakness is concentrated in theperiod immediately following the disclosure.� Moreover,they found that “internal control weaknesses changea firm’s demand for financial skills outside of corporateaccounting and extend to other employees, possiblythose that interact with the accounting informationsystem or whose roles interact with a firm’s controlsover financial reporting.�1
Of course, in this constantly shifting financial reportingrisk environment, companies are always rowing againstthe current when it comes to talent. According to AuditAnalytics, “accounting personnel resources� was the topinternal control issue cited in adverse ICFR managementreports in fiscal year 2020, followed by segregation ofduties related to personnel within an organization. This hasbeen the case for the vast majority of ICFR managementreports over the last five years.2
“These organizations have to be creative in filling gaps,”said one audit committee member, stressing that the newwork environment has required companies to re-establisha sense of community that inspires, attracts, and retainsleaders and staff.
Both the finance organization and internal audit have beensignificantly impacted by the shifting risk environment,requiring those department leaders to assess whethertheir staffing and coverage plans are appropriate for thefuture. “We need to be looking to the future to assesswhether there will be a change in skill sets relative to theservice we provide,� said one chief audit executive.
While short-term solutions and quick fixes are hard tocome by, talent-related inquiry can help the auditcommittee better understand the strategy and theprogress being made. “It is not just the turnover of staffbut ‘which staff?� and how you are ensuring that yourhighest financial reporting control and risk oversight areashave stability and are protected from too much turnover,”said another audit committee member.
A version of this article originally appeared in theblog.
When talent risk poses financial reporting risk
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