The Board of Directors 529accountants are groomed for controllership. The audit committee may find it
useful to get acquainted with the internal audit staff, as a basis for judging
future candidates for the controller organization.
When campaigns to reduce overhead are undertaken, the internal audit
staff may be cut more than is healthy for the organization. The audit committee
questions such cuts and gets an opinion from the outside auditing firm. How-
ever, because internal auditors do much of the verifying that otherwise would be
done by external auditors, at a much lower cost per hour, external auditors may
not have an unbiased view of the proper size of the internal audit organization.
FINANCE COMMITTEE
The board is responsible to the shareholders for monitoring the corporation’s
financial health and assuring that its financial viability is maintained. The fi-
nance committee makes recommendations on these matters. (Nevertheless, as
emphasized earlier, the full board cannot escape its ultimate responsibility for
making sound decisions on important matters.)
The committee’s agenda includes analyses of proposed capital and operat-
ing budgets and regular reviews of the company’s financial performance as re-
ported on the income statement, and its financial condition as reported on the
balance sheet. The committee reviews the estimated financial requirements
over the next several years and looks at how these requirements will be met. It
also recommends the amount of quarterly dividends. The finance committee
(or a separate pension committee) reviews matters of the pension fund as well
as those of the fund for paying health-care and other post-employment bene-
fits. It reviews the policies that determine the annual contribution to these
funds and the performance of the firm or firms that invest them.
This section describes aspects of these matters that are dealt with at the
board of directors level. Reviews of performance and status are described in
Chapters 1 and 2. The budget preparation process is described in Chapter 6.
Financial policies are discussed in Chapters 9 through 13.
In some companies, the functions described here are divided among three
committees, for budget, finance, and pension, and the names may be different.
Our purpose is to describe what committees do, regardless of their titles.
Analysis of Financial Policies
Financial policies are recommended by management. Tools of analysis are in-
creasingly sophisticated. Using these tools to evaluate risk and return is the re-
sponsibility of management, not the finance committee. These tools help to
quantify risk, but they are not a substitute for a definite policy on risk. An atti-
tude toward risk is a personal matter, and the finance committee should recog-
nize it as such. Each CEO has a personal attitude toward risk, and so does each
individual director.