The 7 Deadly Sins of Audit Committees

Common pitfalls for board members

As the expectations on audit committees are raised, and as they come under more and more regulatory pressure, it’s increasingly important that board members understand some of the common pitfalls that audit committees can fall victim to.

To help, Top 25 Firm ParenteBeard has compiled a list of the “Seven Deadly Sins of Audit Committees,” based on research and feedback from its third annual Audit Committee Forum, which was held in late November 2012.

Image source: Shutterstock

1. Haste  1. Haste

Committee members, who are groomed to be problem solvers, pride themselves on being quick to decipher puzzles and make decisions. Speed, however, does not trump the value of a well-thought-out solution. Haste in solving the problem often prevents sufficient time to effectively define and look at it through various frames of reference (e.g., regulators, investors, analysts).

2. Rigidity  2. Rigidity

Committee members often deem problems to be binary decisions—they must accept or reject. Viewing the decision as binary without understanding the root cause of the problem often leads to missing alternative solutions that may be more effective. Once rigidity in thinking is loosened, committee members often learn that the best options come from alternatives that live in shades of gray.

Image source: Shutterstock

3. Naiveté  3. Naiveté

Committee members’ decisions can often be highly influenced by how a solution is framed. Members must adopt a skeptical mindset when hearing proposals, as naiveté can cloud the issues. It’s important to look at proposals through objective lenses and resist peer pressure. Otherwise, members may miss other possible solutions.

Image source: Shutterstock

4. Hubris  4. Hubris

Committee members are experienced professionals, and that experience breeds confidence. Confidence, however, tends to grow more rapidly than experience. Conducting the research necessary to make a seasoned decision tends to be skipped over by members who are overconfident in their expertise. This hubris can lead to a failure to properly define the problem and identify the fundamental objectives, which can lead to an incorrect solution.

Image source: Shutterstock

5. Stubbornness  5. Stubbornness

People tend to stick to their first preference or opinion, leading some decision-makers to seek out only supporting information that confirms their original premise. Stubbornness can cause members to ignore disconfirming evidence and different rationales. Open minds create more fruitful dialogues, resulting in more possibilities.

6. Assumption  6. Assumption

This is the tendency to assume that the first stated monetary value is accurate, even if it is not. Board members may then use this initial number when making future decisions. This can ultimately lead to misguided solutions and conclusions. Often the initial monetary value is determined based on experience, history and industry data, which may not be factually relevant to the specific situation.

Image source: Shutterstock

7. Complacency 7. Complacency

This is the tendency for members to rely on their memory to make decisions, rather than conducting proper research for alternatives. When faced with situations similar to what they’ve seen before, members tend to fall back on past experience for the current decision, even if the situations are fundamentally different. Learning is a lifetime commitment, and complacency can prevent finding the best solutions.

Image source: Shutterstock



Tax Tips for the Armed Forces

The IRS has put together its annual selection of advice for members of the military

View the slideshow >>


6 Tips for Retaining Millennials

Bruce Tulgan shares the best ways to keep your young stars

View the slideshow >>


Top 15 Accounting Firm Taglines

Our favorite firm slogans from around the CPA profession.

View the slideshow >>


Top 10 Challenges of Managing Multiple Accounting Offices

Consolidation in the accounting industry has resulted in more accounting firms juggling multiple locations. Maureen Schwartz, executive director of BKR International, provides a top 10 list of challenges as well as guidance for multiple-office practice management.

View the slideshow >>


What to Do When Your Identity Has Been Stolen

A step-by-step guide for victims of ID theft (and their advisors)

View the slideshow >>


The 'Tax Warrior' Creed

Philadelphia firm Drucker & Scaccetti creates a warrior mindset

View the slideshow >>


10 Tips for Fighting Tax-Related ID Theft

Constant vigilance is the price of fighting online fraud

View the slideshow >>


Taxpayers Speak!

A WalletHub survey reveals what your clients really think about taxes and more

View the slideshow >>


Top 10 Form W-2, 1099 and 1095 Myths vs. Realities

Greatland Corporation has compiled a list of misconceptions when it comes to tax-reporting requirements. Failing to understand the real truth behind these myths can cost a business extra money to file again or, even worse, to pay steep fines if reporting is not done in compliance with regulations.

View the slideshow >>


The Fastest-Growing Firms in the U.S.

The firms with the highest 2015 revenue growth from our Top 100 Firms/Regional Leaders list

View the slideshow >>