See Below C-Level

Here are a couple of thoughts that audit committees and auditors might consider regarding risk.

First, it seems clear that at Bear Stearns (per the book House of Cards) that there were people below the C-suite who understood the extent of risk that was related to the housing markets and that had the capacity to bring down the house – which it did.

However, these people seemed not to have had access to the Audit Committee.  (The same was true at Enron almost 10 years earlier.). One suggestion is that the Audit Committee have discussions with execs below the CFO level, e.g., the treasurer, head of investments, risk management, etc., on the subject of what risks they see that may have gotten muted as reports to the board were polished and edited.

Second, perhaps the outside auditors should ask the same questions about risk to folks below the C-suite.  I suggest that doing so become a practice- not a charter item – so that the process of such inquiry be flexible in operation and not become routinized as another checklist item.

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