BDO USA has issued its annual list of the top issues it expects to be raised at the annual general meetings of shareholders during the coming year.
Among them are internal controls over financial reporting, especially as the Securities and Exchange Commission and the Public Company Accounting Oversight Board have been sounding the alarm about auditing deficiencies related to ICFR. BDO anticipates that boards could be asked questions related to ICFR, whether the disclosure of any identified material weaknesses is sufficient and appropriate, and whether any significant deficiencies identified by management or the auditors have been properly addressed. Investors may also ask if the company is in compliance with the new COSO framework for internal controls.
The PCAOB’s auditing standard on related parties and unusual transactions, which takes effect this year, might also be brought up by shareholders at the general meetings. The new standard, in part, requires auditors to more closely scrutinize executive pay and identify inherent risks, such as incentives that have the potential to reward management for decisions that could prove detrimental to shareholders interests, BDO noted. Investors will want to know that the board is on top of these relationships and transactions, and whether disclosures properly reflect the associated risks.
Another top issue could be cyber security, especially after highly publicized data breaches at Sony Pictures, Anthem Insurance and other major businesses.
Sustainability reporting could also be a big issue for some shareholders. Once the province of leading "green" businesses, BDO pointed out that sustainability reporting is becoming increasingly more common among businesses in general.
Other issues that BDO expects to be raised include global economic concerns, particularly related to Greece and Venezuela, and M&A opportunities and takeover defenses, as well as corporate spinoffs.
Stand-alone risk committees at companies could be another area of concern among investors at the annual general meetings. Most companies assign any risks to the audit committee, which has seen its responsibilities expand considerably beyond the oversight of the company's financial reporting, BDO noted. Audit committees now deal with issues ranging from cyber-security to foreign corrupt practices to whistleblower claims. Shareholders may ask whether the current audit committee has the appropriate experience to handle all of these increased responsibilities. They may also inquire whether the company should have a separate risk committee with the right expertise to provide oversight of these areas.