Financial reporting – Questions to ask

Financial reporting – Questions to ask
• Does our board have members with the necessary level of financial expertise to read and understand
the financial statements and the real or potential impact of new or proposed accounting changes? Do
board members require education sessions to update them on the new accounting standards? Are
individual directors committed to continuous learning to ensure that their knowledge remains up-todate?
• Are our audit committee members all financially literate? Can one of our audit committee members be
considered a financial expert? Does the board consider that such an individual is required?
• Do we, as a board, understand the key performance indicators related to our organization’s strategy
and its key objectives? Do we regularly review performance against these objectives?
Specific questions for the audit committee to ask regarding financial reporting:
The Management Discussion & Analysis
• Does the MD&A contain information on the success, or failure, of any restructuring and cost
containment initiatives undertaken last year?
• Are the most important financial and nonfinancial performance measures clearly identified and
discussed in the MD&A? Are there any significant omissions?
• Conversely, does the MD&A contain too many financial and non-financial performance measures
for readers to easily and clearly understand the company’s performance and what drives it?
• Is there adequate disclosure of performance measures, individually and in the aggregate, to
enable readers to understand and assess the company’s performance?
• Is there a consistency to explanations and messages on performance across the financial
statements, the MD&A and earnings press release?
• Do the disclosures address the company’s performance in generating, protecting and utilizing its
intellectual capital and intangible assets?
• Do the disclosures discuss the company’s performance vis-à-vis the environment and its other
social responsibilities?
• Is there an over reliance on innovative non-GAAP performance measures or other measures that
are unique to the company that might lead investors to conclude that the company’s performance
is better than it really is?
• Is the discussion of performance in the MD&A consistent with, or likely to be consistent with, the
discussion of “pay for performance” in the executive compensation disclosures?
• Are areas of poor performance and the reasons for them fairly presented and discussed?
• Do investors and analysts have the information and metrics they need to compare the company’s
performance with major competitors?
Risk Disclosures
• Are risk disclosures fairly and consistently presented in all disclosure documents (e.g., financial
statements, the MD&A, earnings press release, Annual Information Form)?
• Do the disclosures provide information about how the risks are being managed?
• Do the disclosures provide information on the roles of the board and its various committees in the
oversight of risk management?

Executive Compensation
• Have the audit committee and compensation committee identified what might be called
“compensation-related risks” – i.e., those risks which are directly related to compensation
philosophy, policies and practices – and reviewed how they are being mitigated?
• Have the audit committee and compensation committee assessed whether the company’s
compensation policies and practices present any material risks to the company (e.g., encouraging
excessive risk taking)? If they do, are those risks fairly presented in the disclosures?
• Is there anything in the executive compensation disclosures to be provided in the management
information circular that should also be addressed in the year-end disclosure documents?
For further questions to ask when reviewing your year-end financial filings, please access our 2012
annual financial reporting document review guide.