BDO in the Boardroom

Key Takeaways:Increased Agency and Responsibility: Boards are evolving to take on more agency and responsibility, often driven by a need to be the public face of the company, sign off on increasing disclosures, and develop compensation philosophies. This shift requires boards to embrace themselves as responsible and independent bodies capable of drawing informed conclusions and making decisions to sustain the organization. Long-term Strategic Interest: Boards must focus on long-term strategic interests to drive management’s accountability for corporate strategy. They need to further be focused on resilience and prepare for future challenges, balancing short-term risks with long-term goals. Use of Technology and Driving Information Expectations: Embracing technology, such as online board portals, can assist in managing increasing information and improving efficiency. Compelling management to use tools, such as graphic dashboard reporting and targeted executive summaries, that support reporting can simplify complex data, making it easier for board members to understand and act on critical issues. Orientation and Human Interaction: Effective onboarding and orientation of new board members are crucial. This includes personal interaction with management and other board members to build familiarity and trust, which is essential for the board's effectiveness. • Interplay with Management: Encouraging more interaction beyond executive management can inform and enhance the board's ability to oversee and guide the company. This includes vetting information from various sources and bringing outside perspectives to internal discussions.

Key Takeaways:Maintain Tone at the Top: Boards should confirm that their commitment to compliance and ethical behavior remains strong and consistent, even with the DOJ's pause on new FCPA investigations. This includes consistent messaging throughout the organization. Review Third-Party Risk Management: Companies should reassess their third-party risk management programs to make sure they are not inadvertently engaging with entities associated with transnational criminal organizations (TCOs) or terrorist organizations. Refresh Risk Assessment: Boards should ask management to perform a thorough risk assessment, with an intentional focus on operations. Geographical Focus: Companies should evaluate the culture and increased risk in regions where they operate, to maintain compliance and mitigate risks associated with these areas. Revisit Whistleblower Processes: Boards should ask to be kept appraised of all whistleblower reports and resolutions. Independent Investigations: In cases where there is a potential threat or pressure to pay a bribe, boards should facilitate independent investigations, involving outside counsel and forensic accountants to maintain objectivity and thoroughness. Related Resources:FCPA Compliance: A Practical Guide for Identifying and Mitigating the Risk of Violations

Key Takeaways:AI can be viewed as a necessity for growth to drive both cost savings and revenue growth.Establishing a strong governance framework is crucial for managing risks associated with AI, such as data breaches and compliance with regulations like HIPAA and PCI.AI can be used both reactively to address immediate pain points and proactively to predict and optimize future business operations.While speed and scale are important, startups must ensure they do not compromise on compliance and governance, which are vital for sustainable growth.Developing an AI use policy is a best practice to guide internal and external applications of AI, ensuring responsible and effective usage.

Key Takeaways:    Have a clear understanding of entire supply chain – from where merchandise originates to where it is assembled or manufactured Gather and analyze transactional data to understand the financial impact of tariffs Review the customs triangle levers: tariff classification, country of origin, and value reported to customs Manage the tension between transfer pricing and customs valuation, as these both work in opposite directions Consider the long-term strategy of relocating manufacturing taking in factors such as: cost savings, labor rates, and potential free trade agreements Consider ethical sourcing and sustainability issues, such as compliance with forced labor prevention laws and environmental impact regulations Companies without in-house expertise to address complexity of global customs and trade issues may need to seek outside advisors with specialized knowledge to ensure informed strategic decision-making from both a legal and tax perspective Resources:      BDO Talks Tariffs: Your 30 Min Monthly Briefing Webcast SeriesCustoms & International Trade Services

Key Takeaways:Engaging with Stakeholders: Consider the importance of addressing every inbound inquiry, whether from activists, institutional investors, or shareholders. This involves methodical rigor and balanced engagement to understand and address the underlying concerns.Evaluating Board Performance: Allows for continuous evaluation of board performance, effectiveness, and skills. This includes assessing vulnerabilities and ensuring that the board is equipped to address current trends and macro-environmental impacts.Succession Planning: Nom/Gov committee plays a critical role in defining long-term succession objectives and plans and considering the viability of leadership in multiple levels of the organization for selection, retention, and refreshment/removal of the CEO, C-suite along with the “plus 1’s and 2’s (next level management) as well the board itself. This involves evaluating the needs of the organization and ensuring there are no critical skills gaps.Committee Structure and Allocation: Be accountable for reviewing and optimizing the allocation of responsibilities among all standing and potential other committees of the board. This includes considering rotations and refreshes based on a rationale thought process.5. Corporate Resilience, Culture, and Talent Management: Stress the importance of focusing on the futureproofing of the company by ensuring good due diligence, strong corporate culture, and effective talent management across the organization. This includes considering evolving and shifting regulatory, competitor, and M&A landscapes while integrating new technologies and understanding their impact on people and culture.

To prepare for potential continuation of and/or changes in tax regulations, boards should be taking a vigilant watch and see approach and monitoring respective timing, effective dates and expiration dates: Confer with management to review financial models – e.g., changes in tax rates, deductions, credits, and exclusions. Get regular updates on tax policy changes to anticipate potential impacts on international and global tax strategies. Weigh the more likely scenario that legislative activity taken may allow more permanent actions to extend expiring provisions under current tax laws. Understand the organization's tax risk management policies, focusing on compliance, reporting, and consulting to assess how changes in tax law or procedure could affect the company’s risk profile. Consult with external tax advisors to stay abreast of tax policy changes and ensure coordination with the organization's internal tax team.

Key Takeaways:The SEC and DOJ are imposing record-breaking financial penalties to hold wrongdoers accountable for misconduct, while also offering credit to those who proactively self-monitor, self-report, and remediate misconduct.As highlighted by recent cases, internal investigation procedures and remedial actions are commonly cited as key factors related to the regulator’s view of cooperation and the determination of reduced penalties. Boards must ensure the company has established protocols and resources to identify, investigate, discipline, and remediate violations of laws, regulations, or company policy. Conducting a timely and thorough internal investigation can demonstrate to regulators the Board’s commitment to compliance, potentially helping to avoid or reduce penalties and support a healthy compliance culture. Where misconduct is identified, the board must determine suitable corrective measures and establish an action plan.Related Resources:Podcast: Audit Committee: Alleged Fraud, Now What?Archived Webinars: The Board’s Oversight of Fraud

Key Takeaways and Tax Planning Points: To prepare for changes in tax regulations, boards should:Confer with management to review financial models – e.g., changes in tax rates, deductions, credits, and exclusions. Stay informed on tax policy changes and reviewing with management to understand realistic scenarios. Consider the possibility of a divided government scenario, which may result in sluggish legislative activity and short-term extenders for expiring provisions. Understand the organization's tax risk management policies, focusing on compliance, reporting, and consulting to assess how changes in tax law or procedure could affect the risk profile. Get regular updates on tax policy changes, especially after the election, to anticipate potential impacts on international and global tax strategies. Ensure that tax policy aligns with the firm's social policies, particularly in relation to ESG policies and tax credits promoting certain behaviors or investments. Consult with external tax advisors to stay abreast of tax policy changes and ensure coordination with the organization's internal tax team. Resources: 2024 BDO Tax Strategist Survey

Key Takeaways:GenAI can be used to enhance the efficiency and effectiveness in financial reporting and internal controls over financial reporting. Currently, GenAI can help with tasks such as drafting financial statement disclosures, summarizing key contract terms, categorizing expense transactions, and preparing travel and expense reports.However, GenAI is predictive technology that provides users with a probable response, so it’s not going to be 100% accurate and requires human oversight, review, and judgment.Boards should consider the rigor of their GenAI-related governance policies for:- Responsible, ethical use- Expertise and training requirements- Data privacy and security requirements- Deployment, technology testing, and monitoring - Mitigating fraud, legal, regulatory and associated compliance risks Boards should engage in critical conversation with management about their decisions to use GenAI and how they are assessing related risks, including risk introduced by third parties, and the need for new/enhanced controls.Boards should also apply an appropriate risk framework. Asking the auditor how audit procedures are being adjusted to evaluate significant risks associated with use of data and the GenAI models in developing estimates, judgments and other information that has an impact financial reporting and disclosure. This would further include understanding technologies that the auditor may be using to perform their audits.Additional Resources:• CAQ Publication: Auditing in the Age of AI• CAQ Audit in Action: The Age of Generative AI: How the Profession Can Respond

Key Takeaways:Audit Committees should have a playbook when allegations of fraud arise. The Audit Committee’s response level to a particular allegation will depend on the scope of the allegation and the corporate environment.Determining when an independent investigation is necessary and how independent it needs to be is determined by the context of fraud allegations. Timeliness is critical. Care should be taken in communicating with stakeholders.